". . .despite the investments made to get the
crisis over with, the financial assistance given and
the "migrations" of deposits from banks
in the hands of the Government to institutions taken
over by the Government, there were large debts incurred,
as to which no one is accountable for handling this
assistance or the migrations. . ."
of the Finance Committee
House of Representatives
. .of every hundred bolivars given to Banco Latino,
(7) was recovered. In other words, ninety-three
bolivars was lost. . . over 300 billion bolivars
invested, and it will be sold piecemeal, and only
minute portion of the investment was recovered. .
this time, I fail to understand why Banco Latino will
broken up. Of all the investments made in this institution,
only 7% will be recovered. . ."
Gustavo Tarre Briceño.
Finance Committee Chairman.
House of Representatives.
The banking/financial crisis that began in 1994 with
Banco Latino's resounding collapse has been one of
the world's toughest and intense, exceeded only by
Chile's banking crisis, from 1981 thru 1983.
and World Bank specialists have conducted in-depth
research on world banking crises throughout the eighties,
evaluating their intensity by comparing their duration,
the number and percentage of affected institutions
and the cost of the crisis in relation to the Gross
Domestic Product (GDP).
crisis was tantamount to 20% of its GDP. Argentina's
crisis involved 13% of its GDP, while Venezuela's
amounted to 14% of the GDP generated in the country
throughout 1994. The Venezuelan Government transferred
funds to the financial system by way of assistance
granted by Fogade (the Government's Deposit Insurance
Fund) amounting to one trillion one hundred ninety-eight
sheer monetary terms, Venezuela's banking crisis involved
a higher cost than the renowned 1929 "crack"
that unleashed the so-called Great Depression in the
thirties. This fact in and of itself provides an idea
of the breadth of the collapse of Venezuela's financial
different causes for a crisis of such magnitude are
still being discussed today. Reasons originating in
banking/financial system management (poor management,
insolvency, high portfolio debt, bad investments,
high risk concentration, etc.) and resulting from
the economic environment (unstable currency, high
inflation, high rates, chronic Government deficits,
plus a few others), as well as different political
components (change in government, vindictiveness,
rumors targeting some institutions) account, by and
large, for this phenomenon. In addition, the financial
system as a whole did not enjoy the opening started
by Carlos Andres Perez in 1989, and bank regulation
was ---and some say it still is--- provenly inefficient,
corrupt and run directly by the bankers themselves.
the aftermath of the crisis that began in 1994 with
the collapse of Banco Latino lingers on. A phenomenon
of such magnitude can't be reversed in just a couple
of years. At this time, there's still a handful of
small financial institutions risking their survival
in the midst of this crisis, and their days may be
numbered as large foreign banks (Banco Santander,
Bilbao Vizcaya, Chase, J.P. Morgan, etc.) set up a
presence in the country for retail banking competition
on terms that scores of domestic banks will not be
capable of matching.
in the eighties, a similar phenomenon took place in
the Southern Cone. Argentina, Chile and Uruguay watched
as their financial systems collapsed in the midst
of full openings (such as Chile's) and troubled periods
of political and economic instability.
these nations, huge interest rate differences ---higher
domestic and lower foreign---, together with exchange
rate fluctuations, promised very high returns and
attracted a considerable influx of capital, which,
in turn, caused quick monetary expansion and difficult
domestic demand control. Lack of effective regulation
allowed some real cases of bank carelessness. As per
World Bank estimates, non-performing assets in Chilean
banks amounted to 79% of their equity and reserves
in 1982 and over 150% in 1983. More or less similar
figures and ludicrous rates (over 100% in the last
days of Banco Latino) were seen in Venezuela.
authorities in these three Southern Cone countries
were forced to rescue collapsing banks. Such monetary
expansion weakened ongoing adjustment programs. Argentina
and Chile reestablished direct financial sector controls.
In Venezuela, the Caldera administration set up once
again controls over basic currency fluctuations, exchange
rates and interest rates. It didn't do anything that
had not been done before to deal with financial crises
of such magnitude, including the action taken by the
highly touted and overtly liberal Pinochet administration
remains to be seen whether Venezuela's financial system
learned something from the 1994 crisis and its ensuing
"wave" of collapsing banks. The mix of finances
and politics has proved to be explosive, unstable
and dangerous throughout History. This financial crisis
has brought on profound consequences still being borne
by Venezuelan Society as a whole, such as high inflation,
unemployment, small returns on investment and prevailing
book provides an in-depth explanation of the process
that led to the government takeover of Banco Latino
and delves into the motives of Gustavo Roosen, the
ultimate driver of Venezuela's banking crisis. The
reader will form his/her own opinion of why this man
is known as "The Card Joker".
A Story to be Told
Venezuela, the twentieth century will be marked by
the banking crisis that began with the government
takeover of Banco Latino and ended as it dragged in
17 other banks and their hundreds of affiliated or
related companies, causing the country more damage
than a civil war in terms of the corporations, buildings,
employees and customers hurt by it, without an actual
solution being reached in the best interest of the
enough, the collapse of different banks, particularly
that of Banco Latino, served to create several sacred
creatures that rose over the graves of the banks and
ended up pulling strings self-servingly, in addition
to becoming role models of efficiency built with clay
and plaster, which shall be judged by History and
destroyed by Time.
these events a "financial crisis" would
be tantamount to locking up an elephant in a bird
cage because despite its economic component, politics
certainly played a role of utmost importance therein,
and in the final analysis, it may have been the most
significant reason for unleashing this conflict.
other things, it was an effort by many newcomers and
opportunists that envied those who had achieved high
profits through bank management. Later, they replaced
them, but didn't do a better job, killing with their
own hands the goose that laid the golden egg, without
extracting from it their coveted wealth-seeking positions.
those who believed that the country would gain something
from the government's takeover of the banks made a
big mistake, and this is proven by the Government's
bleeding itself dry through FOGADE, its Deposit Insurance
Fund, as it handed out two hundred billion bolivars
that instead of reaching its scheduled allocation,
ended up in the same stream that was sucking into
an ocean of corruption years of customer savings to
cover up the holes being left by the crisis induced
by the ridiculous decision to exclude Banco Latino
from the Clearing House by preventing the arrival
of funds owed by Centro Simon Bolivar.
notion that the Ramon J. Velazquez Administration,
then in power in Miraflores ---the Venezuelan White
House---, had no intention of providing Banco Latino
with any assistance whatsoever results from its failing
to apply Article 314 of the LGBYIOF, which specifically
states as follows:
the three years subsequent to the date of effectiveness
of this Act, the Fund may provide any banks and financial
institutions not taken over by the Government with
financial assistance in such cases where this is required
for safeguarding the stability of the financial system,
subject to a vote in favor thereof by no less than
5 members of its (FOGADE's) Board of Directors and
a favorable opinion by the Venezuelan Central Bank.
article would have sufficed in and of itself to show
the politization of Banco Latino's problem. Seen in
this light, there are several ingredients in the situation
involving domestic banks; surely, there was an economic
component, but in the case at issue, substantive political
interests prevailed, irrespective of anything else.
The repetition of the word "political" in
this case serves to understand everything that took
place later, as explained throughout the contents
of this book.
provisional government without any actual knowledge
of the mechanics of finances and manipulated by political
interests, such as that of Ramon J. Velazquez in the
throes of its last days in power, decided to pardon
a drugtrafficker as thoughtlessly as it "lowered
the boom" on Banco Latino, thus marking the beginning
of the end of the top twenty five percent that enjoyed
the strongest financial position in the country.
Venezuela's second major bank, Banco Latino had more
than enough property and assets to avoid bankruptcy,
proving that the problem was more political than financial.
Its assets were huge enough to provide it with the
ability to be fully accountable to its depositors
and savers, but it became doomed when it was hit by
the government's takeover, and this was endured together
with not only 3,000 employees that finally succeeded
in receiving payment, but all the people who had entrusted
it with their money and whose lives came to a stop
as of such time, while waiting for a clear and coherent
decision by the Government.
the government takeover would not have taken place,
other formulas could have been applied without such
a high cost for those engulfed by this whirlpool:
People who had earned their money by working or selling
real estate whose profit was inferior to cash proceeds.
that time, it was argued that no more time should
go by and that president-elect Rafael Caldera should
take office without waiting until February 3, given
the provisional nature of the Ramon J. Velazquez administration
and subsequent to the December 1993 elections. Only
twelve days had elapsed in 1994, the same number in
which the General Bank Act had been in effect, when
it endured its baptism of fire as it was unable to
stop the financial crisis whose coming had been felt
since the early nineties.
law had come too late to deal with the twistings that
banking itself had accumulated throughout recent years.
During this time, bank regulation was complacent and
failed to do its job, allowing the growth of small,
medium and some large-sized banks with questionable
financial standing, poor equity and a long list of
generally accepted practices which led to their irretrievable
the midst of this crisis, there were misfortunes involving
the elderly who relied on the financial system that
received their deposits from pensions, trusts and
proceeds of the sale of their real estate to place
them in accounts yielding higher profits with less
risk than that from fighting with tenants.
to keep the record straight, each and every single
depositor recovered his or her funds in the particular
case of Banco Latino, achieving this within the time
frames set to deal with these circumstances at that
time. This situation solved one of the most serious
problems in any bank taken over by the Government:
The Human Aspect.
the case of the international affiliates, with the
exception of the sale of Banco Latino, N.V. to Banco
Provincial, which is under judicial review, all depositors
recovered their funds as well. Banco Latino Internacional
paid one hundred percent of its deposits from its
own funds, and Banco Latino de Colombia was sold at
a huge profit in excess of four million dollars for
Banco Latino de Venezuela, and depositors were not
1993 elections served as a restraint on the problem
in a country whose president had been ousted from
office by the Supreme Court for the first time and
in political turmoil causing a change in government.
After the elections, this topic was discussed openly
once again, and rumors about the insolvency of certain
banks were an essential ingredient to season the 1993
the Government took over Banco Latino, which received
no offer for financial assistance, and the other sixteen
banks, whose takeover took place in different stages,
many events transpired and several seizures occurred
as a result of defaults by those who were leading
these institutions. Their customers were checking
account holders and savers, and Fogade reacted late
on the belief that Banco Latino was up to date, in
principle, on all its payments of deposits of up to
one million bolivars and then even those of up to
less than five million, finally providing a payment
of ten million. Deposits in excess of ten million
were paid with bonds maturing in 2007, but they started
to get paid in February, 1997.
time went by, some providential characters turned
up, as per the Government's belief. They were in charge
of applying several formulae to salvage the savers'
and Government's monies, but in some cases, results
were not as good as expected.
the storm has passed, but the damage still lingers,
and those who occupied the position of administrator
of an institution taken over by the Government often
skewed results to the area which interested them the
most or made incomplete disclosures of the assets
they found as security.
mysteries surrounding the Government's takeover of
banks have been solved in a short time, and many political
and economic analysts concluded that the government
takeover of Banco Latino could have been avoided.
IT ALL BEGAN
to the January 1994 Latino crisis, the government
takeover of several banks ---such as Amazonas, Baicor,
Barinas, Construccion, La Guaira, Metropolitano, Maracaibo,
and Fiveca, a finance company---, shortly after the
government takeover of Banco Venezuela and Banco Consolidado
and in the wake of the government takeover of Banco
Andino, Banco Republica and Banco Progreso, ending
in January with the collapse of Banco Italo Venezolano,
Banco Principal and Banco Profesional, while most
in the banking industry thought that 1996 would be
a year for gaining force and strength, others believed
that no matter the scenario at hand, it would not
be as positive as expected in the absence of a basic
change in the Government's economic policy.
to the International Monetary Fund, there was a variable
involving the trickling arrival of foreign banks,
since only two Dutch institutions came in subsequent
to the opening: ING Bank, which became established
in Venezuela with the assistance of Pedro Tinoco in
partnership with Banco Latino, represented by INTERUNION
BANK, and ABN Amro. In the meantime, Citibank, Banco
do Brasil, Banco Tequendama and Banco Ganadero were
already in operation, the latter two being from Colombia,
together with Bilbao Vizcaya (BBV) and Santander,
the currently established Spanish banks. This agreement
with the IMF shows that most banks surviving this
crisis had to recapitalize and take the necessary
steps that would force them to become more operational.
Therefore, the advantage of the presence of foreign
banks stems from forcing Venezuelan banks to disencumber
their assets, strengthen their equity and face competition
with financially sounder institutions equipped with
upgraded management, and especially, gain the market's
confidence in order to have it forget the events transpired
in such an important industry in the last two years,
which left a virtually unremovable scar.
TIMETABLE OF BANKS TAKEN OVER BY THE GOVERNMENT
ninety-four was a "black" year for the Venezuelan
banking industry. The rumors that had gone around
since early December, 1993 about the fate of Banco
Latino became stronger, gaining substantial intensity
as of the time President Carlos Andres Perez was ousted
from office in May of that year. After being replaced
by Ramon J. Velazquez, he and his team, headed by
Ramon Espinoza, based on false rumors also unfoundedly
maintained by the former chief of the presidential
staff, led the institution to a precarious position,
deciding its government takeover on January 13, 1994.
As is well-known, no financial institution can withstand
the departure of 40% of its deposits. However, Latino
held on for almost two months until its takeover marked
the first resounding blow of a crisis that would last
for almost two years.
after 84 days of a rambling government takeover riddled
with complaints from customers of the Avenida Urdaneta
branch and an ongoing assailment of its private sector
managers, with more than 450 bench warrants, Latino
reopened its doors as a government bank on April 4
after it was duly taken over.
the effects of the crisis spilled over to other banking
institutions, given the lack of confidence the public
began to have as a result of ambiguous Government
decisions that prompted a series of rumors which spread
like wildfire and had their full impact on June 14,
separate chapter could be written on the story involving
these rumors. Seven banks and one financial institution
were taken over by government agencies after receiving
all the support denied to Latino.
that wasn't the end of it. Almost two months later,
on August 7, 1994, it was Banco de Venezuela's turn,
which, nonetheless, remained open and operating under
month later, Banco Consolidado had the same fate.
It also remained open and in operations, but under
the Government's aegis.
November 11 it was Banco Andino's turn, an institution
that would generate a big scandal thereafter when
it was reported that the Government had been protecting
Bernardo Celis, its then Chairman of the Board, a
Convergencia Party senator who was appointed chairman
of the Congressional Finance Committee, which, ironically
enough, was the financial assistance watchdog.
was marked by the huge scandal involving the failure
of Grupo Latinoamericana-Progreso, whose Chairman
of the Board, Orlando Castro Llanes, cried out the
slogan "We are here and we'll remain here"
to differentiate himself from other bankers who had
left already. Its collapse dragged in Banco Progreso
and Banco Republica. In the meantime, Orlando Castro
left the country as well, but he was arrested in Miami
and tried in New York City because of his link to
a Banco Progreso/Puerto Rico operation.
aftershocks of the banking earthquake continued to
be felt in 1995. Thus, in February of that year, the
Government took over Banco Principal, Banco Profesional
and Banco Italo Venezolano, three banks in one-single
shot, while Banco Republica came under Government
control. The cycle was complete on August 22 with
the collapse of Banco Empresarial, whose main offices
were in the State of Zulia.
list could not be longer and more graphic, since 17
banks, one finance company and two large corporate
groups collapsed as the public watched in amazement.
Only five were saved from this attempt (Banco Latino,
Banco Consolidado, Banco Venezuela, Banco Republica
and Banco Andino) because the Government decided to
convert them to government-owned banks, while waiting
to restructure them and sell them at a very high cost
for the Nation.
it collapsed, this bank has been operating in the
country for 40 years. Banco Frances e Italiano, its
initial name, was changed to Banco Sudameris after
the Government determined that foreign investors could
not hold more than 20% of its equity. When the 20%
foreign interest disappeared, it became Banco Latino.
that time, in 1975, its shareholders sought help from
Pedro Tinoco in order to have him run this financial
institution. Tinoco had just finished his term as
Minister of Finance of the first Caldera administration
and suffered a serious setback as presidential candidate
for the Desarrollismo Party in the December, 1973
elections that resulted in Carlos Andres Perez's taking
office, a politician with whom Tinoco had a good relationship.
accepted the position of Chairman of the Board of
this bank, running it for nearly 15 years, until 1989,
when he was appointed Central Bank president at the
outset of Carlos Andres Perez's second presidential
term. At that time, Antonio Ugueto Trujillo became
in charge of Latino until September, 1972, when Gustavo
Gomez Lopez was appointed Chairman of the Board on
the motion of an ill Tinoco at the General Stockholders'
the early nineties, Latino became the country's second
bank, since it had deposits of 144.927 billion bolivars
in December, 1993, exceeded only by Banco Provincial,
and in turn, it was the institution holding the largest
public savings sum, with nearly 20% of the market,
and the leader in trusts. Banco Latino had a very
aggressive policy in its product market. It was the
big innovator, offering checkbooks for left-handed
people and accounts for the young, as well as excellent
communication strategies for them. Its deposit diversification
was such that it was present to some extent in every
THE BEGINNING OF LATINO'S CRISIS
Bank was a key component within a larger conglomerate
known as Grupo Financiero Latino, including Banco
Hipotecario de Occidente, Latino Sociedad Financiera,
Fundacion Corrado Lucherino, Latimer Inversiones,
Fondo Latino de Activos Financieros, Almacenadora
Latina (Almalatin), Adualatin, Mutuactivo, Valores
Latino, General de Seguros (sold later to Consolidado),
Latimar and Arrendadora Latino. These companies were
not owned directly by Latino, but by two related companies:
Latimer Inversiones and Inversiones Inmobiliarias
fact is that Latino began to grow spectacularly as
of 1989, jumping from fourth to second in almost every
survey conducted by the industry's consulting firms.
The Bank's enemies attributed such growth to the significance
of Pedro Tinoco's being the president of the Venezuelan
Central Bank, saying that the Bank's managers were
friends of the Perez administration. Later, there
was a similar situation involving Banco del Orinoco,
whose Chairman of the Board was Julio Sosa, Caldera's
Minister of Finance.
several documents show that public sector trusts were
formed a few years before Tinoco started as president
of the Venezuelan Central Bank, and while Latino's
government deposits increased, Banco Provincial and
Banco Venezuela had a much larger percentage of them.
after Carlos Andres Perez had been forced to resign
from the presidency to be tried by the Supreme Court,
Ruth de Krivoy, the then-president of the Venezuelan
Central Bank, advised Pedro Rosas Bravo, the Minister
of Finance, of the financial position of domestic
banks on May 19, 1993, highlighting, amongst other
things, the substantial decay of the financial system.
In November, 1992, both the Minister of Finance and
the Bank Superintendent were alerted to these same
facts, as they were informed of the acute liquidity
crisis concentrated at that time on a group of seven
commercial banks, to the extent that at such time,
this group of banks had a clearance of 17.657 billion
bolivars in the red. On the basis of such negative
performance, three of those banks had a reserve deficit
of 8.759 billion bolivars on November 30, 1993, and
five were forced to resort to receive credit assistance
from the Central Bank. Altogether, they had a negative
balance of 24.879 billion bolivars at that time.
LATINO WAS LED TO ITS CRISIS
December 21, 1993, Esperanza Martino, Fogade's Chairperson,
Roger Urbina, Bank Superintendent, and Ruth de Krivoy,
Central Bank President, were summoned to an emergency
meeting to specifically discuss the need to aid Latino,
thus avoiding its imminent government takeover. The
aid amounted to 6 billion bolivars, secured by an
equity recapitalization of 15 billion. The stockholders
provided a significant portion of the money, but refused
to continue injecting capital unless there was a statement
by the Government putting a stop to the rumors affecting
the bank's liquidity.
Government's inflexible attitude had led to Gustavo
Gomez Lopez's resigning as Bank Chairman of the Board
on December 18, feeling that he was an obstacle to
the aid. The position was taken by Giacomo Leon, a
man with substantial banking experience, having been
with the institution throughout its 40 years of existence.
rumor became stronger in January, to the extent that
Compania Aeropostal sent a fax to all its branches,
ordering them not to accept any Banco Latino checks.
Clearing house balances were deeper in the red every
day, and the bank resorted to every possible fund,
so that it would not fail to pay depositor funds,
being in the red in excess of 8 billion per day.
January 4, Central Bank President Ruth de Krivoy advised
President Ramon J. Velazquez of Latino's severely
run down financial position. Suspiciously enough,
she hid from him that Article 314 contained the legal
recourse for resolving this situation and safeguarding
the financial system. Nonetheless, Krivoy reported
on January 14 that the Bank had been excluded from
the Clearing House. On the 16th, Ramon Espinoza, the
presidential chief of staff, together with Carlos
Rafael Silva, Minister of Finance, the authors of
the rumors detrimental to the Bank ---according to
some groups--- and the individuals who always took
cabinet stands against any solution to the problem,
announced that "subsequent to a savage rumor
campaign", the Government had decided to take
over Banco Latino. The solutions proposed by the Central
Bank's Board of Directors included that other banks
should give their support to Latino, while knowing
that they were in the same or even worse position,
meaning that this proposal was known to be wrong from
only proposal accepted was the assignment of some
Government bonds held by the Venezuelan Central Bank
itself, resulting from a debt Centro Simon Bolivar
had to Banco Latino, which was in excess of the amount
required for Clearing House coverage. The required
resolution and acceptance at a 4:00 P.M. meeting set
for this purpose were the only thing pending. As told
by Ruth de Krivoy, the story is that Centro Simon
Bolivar's Chairman of the Board arrived 15 minutes
late, the most expensive 15 minutes in the Nation's
the time of the government takeover to April 4, 1994,
when Latino reopened its doors under Gustavo Roosen,
the Financial Crisis Presidential Commissioner, first
as chairman of the Government Takeover Supervisory
Board, then as the Bank's Board Chairman, and later
as the shadow of Alfonso Espinoza when he was Chairman
of the Board, until his departure in March 1996, Latino's
story is worthy of Ripley's "Believe or Not".
ROOSEN'S TERM AS BANK CHAIRMAN OF THE BOARD
two-year time frame in which Gustavo Roosen was designated
to run Latino for its alleged rehabilitation is a
period where it can be said that the Institution was
truly bankrupt, as promoted and sponsored by the Government.
This story is so bizarre that it must be told.
this period, this financial institution received 300
billion bolivars in assistance, and instead of recovering,
waste, poor service, agreements with foreign law firms
---the main topic of this book--- that received millions
of dollars for work that was never known about because
not one-single penny was recovered, with the excuse
of collecting the money Gomez Lopez had allegedly
taken, were the order of the day. Actually, upon the
Bank Superintendent's finally succeeding in auditing
the institution chaired by Roosen, a series of irregularities
were found that could be signaled as the Institution's
real bankruptcy when he submitted his report on August
31, 1995, one year and four months after the Caldera
administration's financial "one-man team"
had taken over the reigns of Latino.
officers clearly indicated that "this audit does
not exempt the mangers of this financial institution
from their liability to perform Internal and External
Audits which are appropriate for the Institution,
in accordance with current principles."
some of the features in Roosen's term as Bank Chairman
of the Board, the Sudeban people pointed out some
internal audit flaws, stating specifically that "Trust
operation flaws found are so significant that they
are tantamount to weaknesses which compromise the
collateral for and current estimate of the value of
all assets held in trust." Some of the weaknesses
were as follows: There was a difference in the inventory
of these assets; item amounts that did not belong
in such assets were journalized unlawfully; the process
for regular investment portfolio checks was delayed
addition, it was said that if the problems mentioned
by the Sudeban inspectors persisted, "this could
result in variables or adjustments having a negative
influence in trust operation capital and thus, the
Bank's own operational stability." According
to a disclosure, custody certificates issued by the
Central Bank (for 22.7 billion bolivars) never identify
the trustee as the owner of said certificates. Banco
Latino just turns up as their holder. This made it
impossible to distinguish and/or determine which certificates
involved the Bank's own operations and which ones
were issued as a result of trust services rendered.
report states that during Roosen's term as Bank Chairman
of the Board, the Bank kept no security portfolio
record of instruments contained in Security, Administration
and Investment Trusts, and flaws were noted in CANTV
trust assets, such as "while Agreement No. 0398
for 15,714,286 shares of CANTV stock was entered in
the ledger at a value of Bs. 3.591 billion, upon reviewing
its provisions, they show that it is valued at Bs.
579.9 billion. There is no knowledge of the existence
of any other agreement which could account for such
a significant difference."
Sudeban officers had nothing available enabling them
to learn what became of the 3 billion bolivar difference.
Additionally, the Bank Superintendent himself said
subsequently in a Congressional hearing that the audit
had been extremely difficult because there was a lot
of resistance at the Institution to providing any
the other hand, ---the report continues--- the securities
purchased for 53 billion bolivars under the trust
agreements do not identify any settlor (CANTV) whatsoever
as their holder; and as to the Monetary Stabilization
Certificates (the "TEM's") for 198 billion
bolivars, while they were purchased between August
1 and August 18, 1995, they were sent 30 days late
by the purchasing agent, constituting a drawback,
since the above-mentioned securities are bearer-issued
may be inferred from this that the alleged purpose
of Roosen's stewardship was to favor groups, corporations
and related companies by authorizing loans, contracts
and payments of all sorts of fees, while marked by
neglect of both the business and its customer base,
as well as by a suspicious disregard for the most
basic principles of bank management.
DEPOSIT MIGRATIONS AND DROPS.
Latino had 94.734 billion bolivars in total deposits
in December, 1994. And actually, the start of saver
deposit migrations to Government-controlled banks
(Latino, Venezuela, Consolidado, and Republica) was
initially noted in January, 1995.
a result, the Bank's deposits doubled that month as
compared to the preceding month, amounting to 189.002
billion, reaching 269.480 billion bolivars, its top
figure, in March, 1995. However, despite the huge
amount of money received, the institution showed no
signs of recovery. On the contrary, its position worsened
to the extent that deposits decreased slowly, but
surely, reaching 205.194 billion in December of that
year, in other words, a drop of 64 billion in just
short, as Chairman of the Government Takeover Supervisory
Board and later as Chairman of the Board of Banco
Latino, Roosen received over 300 billion bolivars
in assistance, more than twice the amount of deposits
from the public. This is tantamount to saying that
it would have been able to pay all cash deposits and
then have some money left over, all without using
the institution's assets. Nonetheless, he did not
use this assistance to pay all of the deposits. There
is the presumption that he diverted such funds to
loans in violation of finance assistance agreements.
the meantime, the Bank's bureaucracy grew despite
efforts by Fogade and Sudeban to implement the rehabilitation
plan. Actually, it was said in December, 1995 that
the main office had deposits amounting to 100 billion
bolivars, the same amount in deposit with the institution's
120 branches nationwide. As a result, it was demanded
that a restructuring plan be implemented immediately
to do away once and for all with the institution's
bleeding. But no one took heed to these pleas, since
the president and his people were full bent on what
they called "the struggle against the fugitive
banker", ordered from the Venezuelan White House
itself, the Miraflores Palace. Roosen's purpose was
not to achieve the institution's recovery or rehabilitation.
The corporate culture called for going after "Gomez
Lopez and his Group", as Legal Department Vice-President
Eva Hobaica herself would say. The bank no longer
existed. There were lawyers walking by the teller
windows. However, they were not there to deposit anything,
but to cash hefty checks, which were approved even
in violation of the most basic accounting principles,
as inferred from the Superintendent's report.
CASE OF FOREIGN LAW FIRMS
hiring of U.S. law firms to try to recover some of
the money which was allegedly taken by Gomez Lopez
and his Board of Directors attracted a lot of attention,
since it was the first time that law firms had been
retained and paid a hefty dollar sum in the midst
of a foreign currency exchange control system, even
if their efforts proved fruitless. As anyone can imagine,
many people hit the ceiling because of this. As a
result, it was determined that some of those law firms,
with branches in Caracas, were linked to Latino board
led to the involvement of the Office of the General
Comptroller of the Republic and a report dated March
14, 1996 by Alberto Lopez Oliver, its representative
in the U.S., indicating that "civil case contingency
fee arrangements have been commonly accepted in the
United States for a long time in lawsuit proceedings,"
stating additionally that "he will not fail to
consider that given the Venezuelan Government's extremely
difficult financial position, that the banks' position
was chaotic, that the Government had been forced to
take over bank properties in an emergency, there were
better reasons, in the best interest of the Nation
instead of that of the attorneys, for arranging for
contingency fees based on the wealth recovered for
the Republic, as I timely pointed it out when the
Prosecutor General did this."
days later, the same Comptroller Office representative
rejected some statements made by Francisco Palma,
who was Roosen's personal lawyer, a Banco Latino board
member and an officer at one of the heavily-favored
law firms, indicating that the law firm of Ginsburg
Feldman & Bress ---which had been retained by
Latino--- engages in lobbying, as per the information
obtained from "Lexis-Nexis" (an Internet
subscription information system with a substantial
data base). Curiously enough, this "public"
service is actually included by Ginsburg Feldman &
Bress in the agreement with the Bank as the most ideal
to access legal information, at a hefty cost.
attorneys rejected Jay Schafrann, who had been proposed
by the Comptroller's Office, claiming that their representative,
Eugene M. Propper, was the best man for the job.
a result, Alberto Lopez Oliver stated the following
in his memorandum to Comptroller General Eduardo Roche
Lander: "Additionally, this representative merely
reviewed the Martindale-Hubell Law Directory, mentioned
by attorney Francisco Palma in his memorandum, and
it was inferred from this review that Mr. Eugene M.
Propper does not turn up in any Legal Ability Rating
and General Recommendation Rating for his Washington/District
of Colombia jurisdiction, while attorney Jay Schafrann
is shown with the highest rating granted in the Directory:
Legal Ability Rating = A (from Very High to Preeminent),
General Recommendation Rating = V (Very High).
attorney Luis Alberto Romero Sequera filed two consecutive
complaints, requiring that Ivan Dario Badell, the
Attorney General of the Republic, order an investigation
to determine whether the operation for providing U.S.
dollar payments to the law office of Ginsburg Feldman
& Bress, located at 1250 Connecticut Avenue Northwest,
Washington, D.C. 20036, complied with the legal requirements
set by the foreign currency exchange control system
prevailing in the country at that time.
represented by U.S. citizens Eugene M. Propper, Dwight
D. Meier and David B. Tatge, this law office acted
in synch with two Banco Latino officers, attorneys
Francisco Palma Carrillo and Maria Eva Salazar Hobaica.
Presumably, these legal professionals, as well as
Fogade and all other parties involved, knew of the
existence of foreign currency exchange control in
Venezuela. As a result, they can't claim ignorance
of the Law as an excuse.
notwithstanding, Attorney General Badell ignored Romero
Sequera's first complaint, who waited a month to file
the second, underscoring as criticism that the failure
to start the applicable investigation was in contrast
with the stiff measures announced by the Government
against any ordinary citizen who violated foreign
currency exchange regulations. Thus, privileges were
being granted in conflict with the country's constitutional
principles when ignoring the violation committed by
the above Government institutions.
Roosen retained a huge number of law firms that were
close to him and his board members to implement all
sorts of lawsuits and research. These law firms took
10 billion bolivars, in addition to something like
1.5 billion bolivars in tax evasion.
WILL BE LATINO'S COURSE?
the meantime, subsequent to Rolando Salcedo's being
at the helm of Latino, some of the principles required
by Fogade and the Bank Superintendent were applied.
As a result, over 50 branches were auctioned off at
the outset and others were placed with interested
banking institutions in fulfillment of the General
Privatization Plan, which was to be approved respectively
by Fogade, the Financial Emergency Board, Sudeban
an any other applicable Government agency.
proved that Latino had significant assets, which sufficed
to continue its operations. The sale of its foreign
affiliates, branches and collateral provided as payment
by its customers gave it enough liquidity to redeem
the bonds handed to depositors who had over 10 million
bolivars seven years prior to their maturity date.
Plan provided for general legal and financial guidelines
which had to be implemented by Banco Latino and a
series of related companies in order to end this process
in approximately four months. Two basic phases or
stages had to be carried out at the same time in order
to liquidate and break up Grupo Latino.
first included a merger of managing and accounting
by issuing a Banco Latino, Banco Hipotecario de Occidente
and Consorcio Inversionista Latino consolidated balance
sheet. As a result, mutual debts would be offset,
and all existing assets would be grouped under one-single
institution. In addition, there were plans to form
a new bank for privatization, which would be fully
rehabilitated both financially and legally.
second stage involved converting the current bank
into a residual corporation. In turn, non-performing
assets would be given to a managing company (Fondo
Inmobiliario) in charge of managing, developing and
selling buildings, having its own management and funds,
and it would become privatized upon payment of Grupo
Latino Capitalization Plan liabilities, represented
as surplus, by exchanging Fondo stock for Unsecured
Bonds at a value determined by the Institution's Board
and his team blocked this plan's implementation, since
it would clearly show that there was inept management
during his term as Bank Chairman of the Board. On
more than one occasion, Roosen offered to privatize
the Institution, but these were electoral promises,
since he never kept them. For his part, Rolando Salcedo
tried to overcome Roosen's obstacles, but he was forced
to resign when the auction was called off after having
set its date and preparing this whole operation. Roosen
had won. Salcedo left, and the country would continue
bearing the consequences.
sent by Ginsburg Feldman & Bress for professional
fees for September. Payment is being authorized by
Maria Eva Salazar Hobaica and Rosa Virginia Tinedo.
THE SHOWCASE LAWSUIT
as a great initiative aimed at cracking down on Banco
Latino bankers and board members who allegedly used
Government funds, a news headline turned up one day
on different print media indicating that Banco Latino,
S.A.C.A., Banco de Maracaibo, and the Deposit Insurance
and Bank Protection Fund (Fogade) had sued a group
of important figures in the U.S. for alleged damages
to the Public's wealth.
suit was brought against Gustavo Gomez Lopez, Claudia
Febres-Cordero Gomez Lopez, Maria Teresa Pulgar, Folco
Falchi, Mary Roffe Silberman, Arturo Malave, Adolfo
Malave, Fernando Lauria Romero, Eloy Montenegro, Maria
Angelica Pulgar, Rosa Maria Rojo Peña, Alejandro
Rivera, Giacomo Leon, Antonio Ugueto, Manuel Arcaya,
Rafael Enrique Abreu, Mario Palenzona, Pedro Gilly,
Heberto Urdaneta and some companies. They were charged
with activities in connection with Banco Latino, where
some of them were board members until this institution
was taken over by the Government in January, 1994.
It should be borne in mind that Mrs. Claudia Febres
Cordero was not a bank board member, and others, such
as the Malaves and Abreus, were merely customers.
In addition, these people were being criminally charged
in a case filed with the Third Banking and Public
Wealth Safeguarding Court for the Caracas Metropolitan
U.S. lawsuit, however, was just an attempt at conducting
an opinion campaign to have the public believe that
efforts were being made to recover the assets and
salvage the image of the banking institution, taken
over by the Caldera administration in an unclear and
not too convincing maneuver. The fact is that when
the Government plaintiffs took the initiative, they
showed that they lacked the appropriate legal advice
to transact an action which the law reserves exclusively
for the Government Attorney's Office; otherwise, they
did this on the basis of the legal impunity existing
in Venezuela when violators of the law are in power
or have presidential protection.
95 of the Organic Law on Safeguarding the Public's
Wealth provides that "the Government Attorney's
Office has the authority and is under the obligation
to file charges in bringing a civil action for the
redressment of damages and that of any applicable
interest as a result of any alleged criminal acts
detrimental to the Public's wealth with which any
defendant may be charged," and the Government
Attorney's Office did this on October 18, 1996, when
it issued a statement on the Banco Latino case and
instituted a civil action on the order of 77 billion
a result, the Government Attorney's Office or its
representatives are the only ones with legal standing
to file actions for damages in connection with Safeguarding
the Public's Wealth. Thus, in principle, this "showcase
lawsuit" is a violation of the law and constitutes
duplicity of actions, as explained later.
clearest showing of the purpose of the lawsuit may
be found in the agreement signed with Manning Selvage
& Lee, which was hired exclusively for publicizing
this lawsuit at a high dollar cost, once again, when
a foreign currency exchange control system was in
place. Roosen didn't hire a U.S. public relations
firm to publicize the benefits of the institution,
but to tell the World that there had been fraud at
Banco Latino, while paying with Government money.
Apparently, the purpose was to cover up what was going
on at the Bank at that time under his stewardship.
the attached letter, Roosen orders payment of the
$10,000 advance, but strikingly enough, the bank draft
by Latino's corporate treasury advances the money
with "funds originating in the International
Treasury", and this was journalized as legal
from a bank's International Treasury are only used
for its business activities because these are customer
funds. Payments of letters of credit and transfers
constitute regular operations, as shown later. The
board members will have to explain why they used those
funds to pay a marketing expense particular to the
Institution and failed to tell the truth about the
nature of this payment.
an unprecedented action, the Government used millions
of dollars to pay for a lawsuit against former Latino
board members without any legal basis.
targeting is unwarranted," ---as maintained by
attorney Roberto Sequera, who mentioned this lawsuit
in his complaint--- "given that most banks that
collapsed or were taken over by the Government have
or had affiliates in the United States and other countries
of the world. What is the reason then for this vicious
attack only and exclusively on former Latino board
is worthy of note that Banco Latino Internacional
was seriously affected by the flight of deposits caused
after its main office in Caracas was taken over by
the Government, forcing managers to resort to U.S.
bankruptcy-type protection. In January, 1995, the
trial judge ruled that the Institution was perfectly
able to continue its banking operations and gave it
the green light to keep operating, this being the
first case in the history of international banking
in the Americas.
bank reopened its doors as usual and paid all of its
deposits from its own funds. Finally, it was purchased
by Suntrust/Miami, generating a significant profit
this fact, one may wonder what was the reason for
so much waste and squander on a lawsuit lacking a
legal basis, where no one was affected, unless there
are other non-banking interests, as it, in fact, seems
to have been. All these millions of dollars should
have been used for solving domestic problems that
considerably affect the Venezuelan people.
"They don't provide any guarantee, but Latino
for everything. . ."
outrageous expenses incurred by the Venezuelan Government
were unprecedented, and they became a bomb, having
its trigger mechanism in Banco Latino, whose takeover
by the Government has been repeatedly depicted as
remembering the 1994 financial crisis, Mrs. Ruth de
Krivoy, former president of the Venezuelan Central
Bank, said this in an interview published in daily
newspaper El Universal: "Only Banco Latino collapsed,
the second largest, but in the eyes of the public,
its collapse constitutes an unusual act of retribution
for political reasons. . ."
remembering back to the days when there were rumors
of a coup prior to the December, 1993 presidential
elections, some opinion fora turned into conspiratorial
meetings to prevent the voting process, flavored by
a crisis in the Nation's financial system and whispered
in small political circles, to the extent that widespread
concern was caused in the banking industry.
barely hanging on to power, the Velazquez administration
feared the unleashing of a conflict of unforeseeable
consequences. As a result, it decided to take action
and met respectively with representatives from the
Bankers Association and Banking Board.
there was ongoing discussion of a plot involving powerful
banking figures, high-ranking military leaders and
even Radames Muñoz, the Minister of Defense
himself. Names turned up in the press, and it was
suggested that Gustavo Gomez Lopez could be in on
the destabilization plan.
the same time, there was a rumor that while receiving
advice from a group interested in discrediting Banco
Latino to expedite its collapse, the Government had
started several maneuvers that had its board members
the people interested in this were those favoring
Rafael Caldera as presidential candidate, who had
a good chance of being elected. Back then, it was
said that Gomez Lopez's biggest sin was his bankrolling
of a large portion of Osvaldo Alvarez Paz's election
campaign, another presidential candidate for Copei,
the Social-Christian Party.
Angel Capriles Ayala, publisher for the powerful Cadena
Capriles, who, from being Caldera's enemy went on
to give him his full support in the last elections,
said ---because the president himself told him---
that "Gustavo had only given him a lousy ten
the retribution that Mrs. Krivoy mentioned indirectly
could be related to this event, which reflects Caldera
grudge against his former Copei colleagues, who dared
to have one of their top men (Alvarez Paz) run against
him in a crucial electoral process, such as that of
hostility for Gustavo Gomez Lopez became public when
as president-elect he summoned all bankers to a meeting
on Friday, December 18, 1993, at his Tinajero home,
while specifically asking Victor Gil, Banco Internacional's
Chairman of the Board, who was very close to him,
to have Gomez Lopez not attend the meeting.
as soon as Caldera's second term started, there was
this persecution against former Latino board members,
as some sort of an extension of the hate, to settle
a few pending scores. Just the act of paying $250/hour
to some U.S. lawyers to do the "dirty work"
constitutes the real fraud.
agreement signed with the law firm of Ginsburg Feldman
& Bress started to originate whopping bills in
dollars, but in addition, they did not guarantee that
the lawsuit would be won, although it was stated very
clearly that they would "charge for everything".
document specifies that the attorneys and their assistants
charge $250 an hour, warning that "everything
will be paid for" in the event of any rate increase
by the law firm.
it mentions other charges assessed on the contracting
parties (Banco Latino, Banco Latino Internacional,
Consorcio Inversiones Latino, Banco Maracaibo and
Fogade) for filing, transcribing, telephone calls,
photocopies, witness expenses, postage, computer services,
trip expenses, overtime, etc., all of which being
"charged at a price exceeding our direct costs
to cover our administrative expenses and overhead."
(See the EXHIBIT section to review the agreement,
as signed). And Latino would pay for everything from
government funds because this had been decided by
Gustavo Roosen, as shown in the letter addressed to
then Fogade Chairman Enrique Nucete on May 25, 1995.
Attorney Ivan Dario Badell was present when attorney
Francisco Palma Carrillo announced in a news conference
that a lawsuit had been filed in the U.S. against
former Latino board members. His presence gave this
a solemn air, but this was largely contrary to law,
which only affords the Government Attorney the authority
to file a civil suit, as stated earlier.
event was also attended by presidential chief of staff
Andres Caldera, who stated that the Government had
a great deal of interest in the Latino case. This
was another unequivocal showing of the problem's political
the media, Roosen publicly offered that there would
be a decision within 120 days, meaning that the bank
executives would be in jail by October, 1995. Nothing
has started yet after almost two years and a 10 million
a large extent, the operations of Agricola La Castellana
are the backbone of the lawsuit, but this company
currently reached a payment agreement with the Board
of Directors, chaired by Rolando Salcedo, which was
actually oriented to achieving the Institution's recovery.
farming company's officers were excluded from the
Miami lawsuit. Other sued customers are reaching agreements
with the Institution, and it shouldn't be surprising
that their exclusion may also come at anytime.
hirings of the attorneys and the public relations
firm have become a scandal whose particulars only
began to be investigated in March, 1996 when finally,
after the above-mentioned complaints, the Government
Attorney's Office acknowledged receiving the memoranda
sent by attorney Luis Alberto Romero Sequera, meaning
that the investigation was opened back then, but nothing
has happened up to this time. The tentacles of power
were evident once again.
THE LAW FIRMS' WINDFALL
believe that Banco Latino's board members resorted
to the speculative Brady Bond market to obtain the
more than 2 billion bolivars it paid to U.S. law firms,
particularly to Ginsburg Feldman & Bress, from
September 8, 1994 to February 8, 1996.
March, 1995, independent congressman Luis Rosendo
Hernandez filed a complaint with the Nation's Congress
against Latino board members where he shows that millions
were paid to foreign law firms without the approval
of the Foreign Currency Exchange Technical Office
congressman warned that "since the control does
not exist because the money was not authorized by
OTAC, unjustified payments to these law firms could
exceed 2 billion bolivars."
that time, Luis Rosendo Hernandez submitted a list
of the monies paid during such period and reported
that Ginsburg Feldman & Bress received the sum
of 901,600,000 bolivars (at the official exchange
rate of 290 bolivars to the U.S. dollar), while the
law firm of Baker & McKenzie received 2,600,000
(however, this agreement complied with Comptroller
Office specifications and was supervised by the General
Prosecutor's Office, as per this congressman).
it's well worth it to learn of a more detailed listing
of the events compromising Gustavo Roosen in payments
to U.S. lawyers from as early as September 9, 1994
to February 8, 1996 (See the EXHIBITS), amounting
above-described payment was authorized by Roosen and
Eva Salazar Hobaica, together with Rosa V. Tineo,
subject to authorization by Latino's Executive Committee,
on November 6, 1995.
this evidence is a serious indication that economic
crimes were committed, as provided in Article II (Exhibit
7) of the Foreign Currency Exchange Act and stated
in the complaints filed by attorney Luis Alberto Romero
Sequera, who gives the reminder that any public or
private sector officer will be criminally prosecuted,
believing that Article 8 of this Law is applicable
to this case, which reads: "Anyone allocating
foreign exchange legally purchased from the competent
authority to a purpose different from that for which
it was approved shall be punishable by a term of imprisonment
ranging from six (6) months to four (4) years and
a fine of one (1) to three (3) times the equivalent
value in bolivars of the sum of foreign exchange purchased."
this prestigious attorney states in his complaint
that other articles of this Law may be applicable,
raising the above sentence to five years, by one third
in another case and doubling the fine. All this while
bearing in mind that the Latino board members did
not actually purchase this foreign currency for importing
services, for which they should have followed the
established procedure, but rather, it was obtained
from the Venezuelan Central Bank to conduct bank operations.
the Law provides for restitution of the foreign exchange,
but most importantly, the law states very clearly
that all foreign currency exchange crimes come under
ordinary jurisdiction. As a result, any Chairman of
the Board and board member of a Government-controlled
banking institution, such as Banco Latino, may be
prosecuted, without resorting to the cumbersome Safeguard
jurisdiction process, as per attorney Romero Sequera.
the hiring that has attracted the most attention in
the country's legal circles has been that of Baker
& McKenzie, mainly because there is an obvious
connection between this law firm and Francisco Palma
per the letter sent by Rolando Salcedo to the Congressional
Committee that reviews any alleged irregularities
committed by Roosen during his term as Chairman of
the Board of Banco Latino, the following are the persons
who authorized payments to the different law firms:
In early 1994, Francisco Palma, Bank Legal Counsel.
Hely Fernandez, the then Executive Vice-President,
authorized payment of advances on professional fees,
as per the legal counsel's request.
Jesus Herrera, Vice-President of Corporate Finances,
and Daniela Colmenares, Corporate Treasury Manager.
Starting in May, 1995, Maria Eva Salazar Hobaica,
Legal Department Vice-President, authorized, ordered
and approved payments.
In November and December, 1995, the Executive Committee,
as well as in January and March, 1996.
There is no specific authorization by the Board of
Directors delegating in anyone the approval and payment
Another letter addressed to the House on the same
day, but discussing fees paid to attorneys in Venezuela
In 1994 and starting in April, 1995, payments were
authorized by the officers at the Office of the Vice-President
for Affiliates named Jose Manuel Aguilera, the Vice-President,
and Pedro Pablo Ascanio.
Beginning in April, 1995, Maria Eva Salazar Hobaica
approved, authorized and ordered any payment.
In 1996 (new management), the Executive Committee.
Additionally, even though this was not stated in this
letter, Mrs. Nancy Mago also authorized fee payments
while she occupied her temporary position for more
than one month.
Date: Caracas, 12/28/95
of: ******GINSBURG FELDMAN AND BRESS****** $***429,889.53
the time it took office, president Caldera's administration
has sustained that it is an "austerity Administration",
and as a result, it has conducted advertising campaigns
based on any action taken for such purpose. Even his
son, Andres Caldera, former presidential chief of
staff, was considered an important aide to his father,
especially because of the staff "cuts" he
made while holding his position.
austerity seems to be a joke in Venezuela, since this
is only for the population that has lost considerable
purchasing power and experienced a 40% reduction in
their ability to consume goods, while being hit by
a serious economic crisis. Rafael Caldera has the
honor of having led the country to the highest inflation
rate in Venezuela's history, being at 103% on December
few ministers and Government institutions have subjected
themselves to Caldera's standards for cutting back
expenses. As a result, the million dollar spending
spree, promoted by the two terms of Banco Latino board
members where Gustavo Roosen held high positions,
kept on going without running into any obstacle in
basis for this gigantic scandal is not only the hiring
of the U.S. law firm of Ginsburg Feldman & Bress,
conflicting with the foreign currency exchange system,
as stated earlier, but the illegal terms in the agreement
that was signed, providing for one-sided rights to
said firm for the purpose of charging professional
fees and expenses; unlimited rights to incur expenses
lacking advance justification and reimbursable forthwith
by the Venezuelan Government. In addition, the Government
was forced to pay any other legal professionals hired
in the State of Florida on the decision of the aforesaid
law firm, and it was further provided that Ginsburg
Feldman & Bress was entitled to withhold from
Latino any documents, monies and assets in general
to secure payment of its fees.
enough, the liable contracting parties, particularly
Roosen, who had considerable experience in the Latino
case because of his involvement in its Government
takeover and his actions on the two Board of Directors
of that Institution, allowed this irregular procedure,
which constitutes a mockery of the austerity proclaimed
by the Government, and, in turn, violates the most
basic terms in any agreement.
the action was being brought in the State of Florida,
there is no explanation for the Venezuelan Government's
decision to retain Ginsburg Feldman & Bress, with
main offices in Washington, D.C., in other words,
at a distance of more than 600 miles from the court
where the suit was filed.
can imagine the exorbitant expenses that our Government
had to incur as a result of taking to Florida a team
of attorneys, investigators, experts, secretaries,
aides, detectives and other officers.
of this would make some sense if it wouldn't have
been possible to get a group of attorneys to handle
the action in the venue where "the acts or omissions"
took place. But everyone knows that there are major
internationally prestigious law firms established
in the State of Florida.
it should be noted as well that the Government paid
for the steep tickets, transfer expenses and trips
between Caracas and Washington, as shown in fee payment
records, which reflect payments of hours worked by
foreign attorneys who came to the country and set
up their office at Banco Latino headquarters, on Avenida
Urdaneta, in Caracas.
this bleeding in dollars was disbursed by a bank that
was floored in the midst of "bankruptcy",
as per the latest financial report issued on December
31, 1995, having lost 1.5 billion bolivars in equity,
according to public information existing at that time.
order to report this fraud in direct detriment of
the Public's wealth, attorney Luis Alberto Romero
Sequera told Attorney General Ivan Dario Badell for
the third time about the need to conduct an in-depth
investigation to find out who was responsible for
his complaint, Romero Sequera asked the Government
Attorney's Office to look into the hiring of "Public
Relations Offices" in the State of Florida for
the public promotion of attorney Eugene Propper on
such organization's media. As stated earlier, Propper
is a member of the law office of Ginsburg Feldman
& Bress. Moreover, he reported the existence of
an agreement signed by Jim Grey and Ted Lowen, representatives
of Manning Selvange and Lee, a New York advertising
firm, represented in Miami by the earlier-mentioned
Julio Garcia. It should be noted that Paragraph 2
of this agreement provides that "cost of public
relations activities depends mainly on the time taken
to honor requests. Specifically, the activities discussed
with Eugene Propper, of the firm of Ginsburg, Feldman
& Bress, include the disclosure on U.S. media
of a lawsuit (beginning on June 16, 1995) and the
immediate coordination of a campaign on major U.S.
media, including The New York Times, The Wall Street
Journal, The Washington Post, The Miami Herald and
the main television networks. In addition, we will
be keeping a watchful eye during the initial phase
of the campaign with a schedule of answers to any
adverse reaction which may be brought on by the lawsuit's
don't believe ---as argued by the complainant--- that
these advertising agents are required for collection
efforts; they are needed only for selling a large-scale
product or supporting political initiatives."
a foreign currency exchange control system, such as
that which existed in Venezuela, no public official,
not even if he were named Gustavo Roosen, was authorized
to sign any foreign currency-denominated agreements
and much less publicize an ongoing lawsuit, unless
other interests were being pursued. This action in
and of itself constitutes a crime provided in the
Foreign Currency Exchange Act, and this is in addition
to the clauses on future unlimited expenses, unilateral
rights to charge and establishment of fees for other
attorneys in the State of Florida.
payments made by Banco Latino S.A.C.A. without OTAC's
authorization amount to US$4,736,862.77 (see the complete
list in the "EXHIBIT" section).
board members managed the institution as if it had
been another Venezuelan Central Bank by making payments
in foreign currency and applying an official exchange
rate without advance authorization, as per attorney
Romero Sequera. As a result, he charges them with
using this institution's international accounts for
the payment of services provided by foreign law firms
that were alien to the Bank's money-brokering commercial
explained that the International Treasury "is
a commercial banking institution for the purpose of
making collections and payments of international operations,
such as letter of credit funding, interbank commissions
on international operations, commercial transfers,
Sequera concludes by stating that International Treasury
funds originate mainly from foreign trade related
customer operations, even more so in an economy with
foreign currency exchange control. Consequently, the
payment of services by the above-mentioned Treasury
constitutes a technically incorrect and illegal use
of the funds handled in that account within the Institution.
THE COMPTROLLER'S OFFICE WAS IGNORED
irresponsibility existing in the country is significantly
impressive when an institution headed by a man like
Gustavo Roosen, known for his track record in the
private sector (Grupo Polar) and as former Minister
of Education, ignores the Office of the Comptroller
General of the Republic, which warned in timely fashion
that the firm that mainly benefitted from these payments
(Ginsburg Feldman & Bress) was in conflict with
the interests of the Nation.
Lopez Oliver, the representative of the Office of
the Comptroller General of the Republic in the United
States, sent another memorandum to Comptroller Eduardo
Roche Lander indicating the serious flaws in the agreement:
Firm neither guarantees results nor couples its fees
thereto; that is to say, the Government is under the
obligation to pay all legal expenses, even if not
one single penny is recovered.
expenses are broken down in an unusual manner and
do not include any investigations or related legal
actions, which must be negotiated separately. Fees
have no limit and expenses are unilaterally set by
this U.S. firm. Venezuela will be charged a price
exceeding cost of service expenses.
. .We (meaning the Firm) reserve the right to request
financial advances as security for our invoice charges.
You (meaning Latino) agree to pay all invoices which
the Firm may submit to you within ten days from the
date of their receipt'" (excerpt from the memorandum).
unbelievable about all this is that despite the Comptroller's
Office's questioning, this law firm continued receiving
large foreign currency-denominated sums.
a given point in time, Latino board members felt that
their actions had been uncovered, and while they were
good users of the power originating from their influence-trafficking
in high Government circles, they sought to divert
attention. Alfonso Espinoza, the then-Chairman of
the Board of Latino, told the media about the benefits
of the U.S. lawsuit.
fact, Espinoza explained to the media that the suit
brought in Florida served to have Mario Palenzona
"agree to demands for payment; and as a result,
he made payments amounting to two million dollars."
However, this is not the case, as stated by attorney
Romero Sequera, who uses the brief he sent to Attorney
General Badell to explain that Alfonso Espinozas's
statements were false.
As a result, he urged the Government Attorney's Office
to look into this manipulation aimed at confusing
public opinion, since "it is a known fact that
Mario Palenzona reached agreements with Banco Latino
Internacional for reasons totally unrelated to the
whoppingly expensive allegations made by the U.S.
law firm in its complaint."
THE CASE OF MARIO PALENZONA
to the government takeover of Banco Latino and its
group of companies in Venezuela and its resulting
crisis, Banco Latino Miami petitioned for Chapter
11 for protection from deposit flights on January
11, 1994. The petition was granted, and pursuant to
U.S. law, the Bankruptcy Court ordered in January
itself a freeze on any accounts and deposits maintained
by any board members of Banco Latino Internacional
to respond for any eventual damages originated from
their actions. On November 29, 1994, this Court accepted
Banco Latino Internacional's Rehabilitation Plan.
As a result, this institution was no longer under
Chapter 11. Nonetheless, account freezes were not
lifted because this is done only when each individual
requests it from the company, whose authorization
is required. Otherwise, a protracted and controversial
legal action must be filed. The suit against former
Latino board members was filed in May, 1995, when
more than a year had passed from the time the freeze
was ordered. No action was taken against any defendant
in this lawsuit. The law firm of Ginsburg Feldman
& Bress was also retained after the date of the
filing for Chapter 11 (granted in January, 1994),
in December, 1994. As a result, it never acted in
this proceeding. It is worthy of note that the attorneys
who assisted Banco Latino Internacional in this action
was the office of Valdes Fauli, Cobb, Bischoff, Kriss
& Mandler, as reflected in the respective agreement
received by the Speaker of the Senate on June 14,
corporate group and the persons related to him maintained
deposits with Banco Latino Internacional amounting
to nearly US$6,000,000.00. All of them were "frozen"
by the order issued when Chapter 11 was granted. The
Group legally moved for the lift of the accounts'
freeze. Banco Latino Internacional proposed a settlement
to them, subject to Bankruptcy Court approval, containing
a series of reciprocal concessions, including, but
limited just to Palenzona's paying US$2,000,000.00.
In exchange for this, for instance, it lifted the
block, allowing the withdrawal of over US$3,500,000.00,
and gave him a general release, discharging him from
any liability for his actions as board member of Banco
Latino Internacional, not only as to the suit brought
in 1995, but with respect to any other reason originating
from his actions as board member. Additionally, Banco
Latino C.A. and FOGADE obviously gave him a release
for such actions, resulting in their abandonment of
the suit in the United States.
it can't be said that the settlement sum of the Banco
Latino Internacional Chapter 11 Case was recovered
by the law firm acting in the case involving the lawsuit
brought against the former board members of the Miami
bank. Claiming that such results were achieved by
a law firm retained after some of these events transpired
and the issuance of the applicable Order would be
a self-serving manipulation of fact to account for
(in all other respects and even very little at that)
the squander of a sum close to 4.7 billion bolivars
paid for professional fees to that very same law firm
and its subcontractors. Moreover, the law firm of
Valdes Fauli Cobb et al. charged fees for the same
services, as per its agreement. As a result, if this
manipulation were sought, the Bank would have provided
payment twice, to two different people, for these
same activities, which would surely be a lot more
Badell was given the lead that diversion maneuvers
were being thought up to offset the strong impact
from the scandal involving the hiring of foreign attorneys.
Actually, the main purpose was to avoid any significant
criminal, civil and administrative liability issuing
from these resolutions by Banco Latino's Board of
Directors, chaired by Gustavo Roosen and Alfonso Espinoza,
and board members Francisco Palma Carrillo and Eva
Salazar Hobaica, as well as Fogade and Banco de Maracaibo's
Government Takeover Supervisory Board.
Romero Sequera requested a Special Prosecutor for
conducting this investigation, since he believed that
these actions were very serious. As a result, he demanded
that the applicable steps be taken as soon as possible.
(The list of fees paid to the different foreign law
offices may be found in the "EXHIBITS" section).
MILLION DOLLAR TAX EVASION
A Legal View
managed by Roosen, Banco Latino retained several domestic
and foreign law firms that would conduct investigations
and research and provide the bank with legal advice.
These offices include the law firms of Ginsburg Feldman
& Bress and Ackerman Senterfit & Edison P.A.
The documentation for these retainers was received
by the Comptrolling Committee. Their fees were in
excess of ten million dollars (US$10,000,000.00) or
nearly 4.7 billion bolivars. This sum was paid in
the short span of one year, and up to this time, there
have been no results whatsoever. Banco Latino's attorneys
and board members (many of them also hold a law degree,
just like Roosen, its former Chairman of the Board)
decided to ignore their tax liability. This is particularly
striking and serious in the case of a bank with the
magnitude that Latino succeeded in having. In fact,
an institution that was second in the market at the
time its managerial activities were taken over by
the Government is by its very nature an extremely
important and qualified tax broker. Thus, the Government
itself often hired these banks as Collections or Receipts
Agents. As a major banking institution, the one under
discussion generates and pays income taxes, sales
taxes and all sorts of contributions.
operations are complicated, since some are taxable
and others are tax-exempt. It is a major employer
and disburser of wealth generated by its employees,
advisors and third-parties in general. Therefore,
banks are institutions usually monitored by the Tax
Administration, having sophisticated and advanced
systems and departments for detecting and quantifying
any tax liability that should be paid, withheld, collected
or received by both the institution and its customers,
employees, advisors and general public.
to comply with these processes or selectively abolishing
them for tax evasion purposes is a very revealing
action totally aimed at promoting irregularities as
those under discussion in this book, apart from being
objectively considered a crime. In short, this is
some of the damage inflicted on Banco Latino S.A.C.A.
under Roosen and Espinoza.
There was complete breach of the Wholesale Sales and
Luxury Tax Act. As to this, it should initially be
borne in mind that this law has been in effect since
May 24, 1994, a period of more than one year before
Banco Latino paid the earlier-indicated exorbitant
fees and failed to comply with the tax provisions
in this law. The intent and purpose of the Sales Tax
applicable to this situation is to levy alienations
of any personal property or service or imports of
any goods and services, as stated in Article 1 thereof.
This tax must be paid by any individual or corporation
and by all public or private institutions performing
any activity defined as taxable within the Law in
their capacity as importers of goods or services and
providers of independent services.
taxes generated by these activities must be passed
by the professional service provider on to the recipient
of the service, who is the bearer thereof (in everyday
language, this means that he pays for it), as set
forth by Law. Article 3 of this Act establishes very
clearly that the sales tax on services received is
paid by "any public sector enterprises legally
formed as a business corporation, autonomous institutions
and other decentralized federal, state or municipal
government institutions, as well as those institutions
created by them when engaging in any taxable acts"
contained in this Law. Therefore, all Government enterprises,
including, for instance, PDVSA, VENALUM, and banks,
such as Banco Industrial de Venezuela, bear (pay for)
the Wholesale Sales Tax and do so religiously, with
no question whatsoever.
said earlier, the tax disburser is the person providing
the professional service. However, when the service
provider is a foreign person, in other words, a person
not domiciled in the country, the service recipient
is liable for its payment, pursuant to Article 5 of
this Act. Article 42 of this Act further indicates
that "Taxpayers and liable parties otherwise
provided in this Decree are under the obligation to
report and pay this tax in the place and manner and
on the date set forth in the Regulations." This
means that two are under this obligation in these
cases: the service provider (who would violate the
law as well, if he does not disburse it) and the recipient
(this would be Latino). As is well-known, the then-current
sales tax was 12.5% of the service price. Therefore,
just for this item, there would be three hundred sixty
million bolivars (Bs. 360,000,000.00) in tax revenues
from the sums mentioned as paid to foreigners for
professional services rendered. Moreover, it is worthy
of note that professional fees generated by these
overseas-hired firms are taxable acts, as provided
by this Act in Articles 8 and 9, whenever these are
performed, provided, used or utilized in the country.
the case under discussion, any activities involving
professional fees paid to law firms and other foreign
firms are subject to the Luxury and Wholesale Sales
Tax Act, since these services are included in the
provisions of this Law, and most of this agreement
was performed within the country in benefit of a domestic
bank. Actually, on the one hand, the invoices sent
to Congress reflect that several individuals from
the law firm of Ginsburg Feldman & Bress traveled
to and remained in Venezuela, providing their professional
services for many days and hours. Thus, for instance,
Invoice No. 95268534, dated June 23, 1995, shows that
A) Page 9: From May 22 thru May 31, attorney Eugene
Propper claims to have traveled to and stayed in Caracas,
where, just on that occasion, he worked for 79 hours,
which, at $250/hour, would come to US$19,750.00. B)
Page 10: From May 5 thru May 31, attorney Dwight Meier
traveled to and stayed in Caracas, where, just on
that occasion, he worked for 168 hours, which, at
$225/hr., comes to US$37,800.00.
the other hand, irrespective of any physical work
performed, the purpose of the agreement is to recover
damages from Latino's former board members. If this
task were to meet with any success, any recovery would
be obviously used by the bank within the country.
This is provided as a taxable act in the above-mentioned
conclusion, in the case at issue, for nearly a year
and in an ongoing fashion, every single month, Banco
Latino, together with the U.S. firms, violated the
law when failing to pay any Wholesale Sales Taxes.
Moreover, this violation is striking because the people
in charge of selecting and paying for these exorbitant
sums are attorneys for the most part: Mrs. Eva Salazar
Hobaica, Esq., Legal Dept. Vice-President (authorized
payments); Mr. Francisco Palma, Esq., Legal Counsel
and Board Member (Mrs. Hobaica's immediate supervisor);
Mr. Gustavo Roosen, Esq. (Bank Chairman of the Board);
Mr. German Garcia Velutini, Esq. (Board Member). Presumably,
all these people are knowledgeable in the banking
area, and they should be otherwise considered extremely
qualified in the legal and economic areas. Finally,
to keep the record straight, most law firms hired
in Venezuela by Banco Latino, C.A., such as Baker
& McKenzie, Pescifeltri Diaz Cañabate &
Asociados, Araque Reina de Jesus & Asociados,
Ivan Varela, D'Empaire y Asociados and Gomez Rojas
y Asociados violated the Luxury and Wholesale Sales
Tax Act. Alternatively, some other Venezuelan law
firms did invoice and pay for this tax, without any
objection by the Bank. This also makes you wonder,
since they were fully aware of such unequitable treatment.
No income tax withholdings were made as per Article
78 of this Law, which reads: ". . .any non-mercantile
professional fees paid or credited to individuals
not residing in Venezuela or corporations non-domiciled
in the country shall be subject to withholding, irrespective
of their payer." Article 9 of Decree 507 provides
that 34% shall be withheld from fees paid to corporations
non-domiciled in the country.
the law makes no distinction as to the place where
services are provided when establishing this blanket
obligation to withhold taxes. In addition, any person
that may have received consulting wages or fees knows
that the applicable withholding is an essential obligation.
Further, as explained earlier, professional services
by law firms such as Ginsburg
Feldman & Bress were rendered and provided in
Caracas, at the Bank's own offices on Avenida Urdaneta.
Thus, it can't even be claimed that even a partial
tax withholding is inapplicable based on the precept
of territoriality. It is worthy of note that in addition
to the exorbitant sums on these invoices, these are
very specific as to places, "exaggerated work
rate" and activities. As per the withholding
rate indicated for foreigners, one-single act of evasion
in this regard could amount to one billion twenty
million bolivars (Bs. 1,020,000,000.00). The above
remarks are also applicable to this in relation to
the reason for which Banco Latino, a company that
has more than sufficient employees and processes to
detect, withhold and pay taxes, just happened to be
remiss in paying not one type of tax, but all applicable
to this situation.
to the different types of liability, the Income Tax
Act, the I.V.M. Act and the Organic Tax Code set forth
very clearly that the person who should have borne
or withheld the tax is jointly and severally liable
for paying said sums in both cases. Moreover, the
Law discusses the different types of liability of
board members and any higher officer or officers who
order or authorize payments without requiring any
withholding. In this case, the individuals who authorized
payments would be Eva Salazar Hobaica and Francisco
Palma, Legal Department Vice-President and Legal Counsel
respectively, and former Chairmen of the Boards and
board members Gustavo Roosen, Alfonso Espinoza, German
Garcia Velutini, Edgar Dao, Jacques Vera, and Nelson
Olmedillo, plus a few others.
it is worthy of note that being derelict in these
formal tax obligations does not only constitute tax
fraud, but a crime against safeguarding the Public's
wealth, inasmuch as, on the one hand, a loss would
be inflicted on the equity of the bank (a government
institution), amounting to the sums of money it must
pay because of its dereliction, and on the other,
this actually inflicts a loss on the Nation's Treasury,
which has not been able to receive payment of a hefty
sum in taxes on the part of foreign companies and
some domestic firms.
the case of the foreign institutions, it's a lot harder
to recover from them any outstanding sums without
having to incur new and onerous legal expenses in
order to sue them overseas, thus repeating the sad
story told. Finally, the tax code provides that tax
fraud crimes involve aggravating circumstances when
these are committed by government employees and officials,
such as the former Latino board members and officers.
February 18, 1997, the Supreme Court of Justice issued
a decision on the conflict of jurisdiction arisen
from the complaints filed against Gustavo Roosen's
stewardship. This case will be looked into by the
Court for Safeguarding the Public's Wealth.
the name of the fight against corruption, irregularities
are increasingly committed in Venezuela, confirming
that this scourge is more widespread on upper echelons
and generates an ongoing series of acts of corruption
towards intermediate and lower levels.
extremely negative for the country to be amongst the
world leaders in corruption. Nonetheless, it seems
that the fight against this evil is more complicated
than presumed in the Government's campaign, including
its Anticorruption Commissioner, who hasn't shown
any substantial achievements.
preachings by the Office of the Comptroller General
of the Republic don't seem to be enough either. Its
incumbent submits an annual report to the Nation's
Congress reflecting the manner in which administrative
irregularities grow in Government institutions. But
everything just translates to a collection of anecdotes.
Investigations are promised, but never started, and
those whose progress results from pressure by the
media and other sectors within the country usually
Rafael Caldera arrived for the second time in the
Miraflores Palace ---the Venezuelan White House---
promising a nationwide ethical revision which would
involve an imminent defeat for corruption. This was
one of his most significant standards in the electoral
Nevertheless, surveys and other specialized research
show that corruption has grown in his Administration.
---and this is repeated, even if stated earlier---
no wonder there are such juicy transactions out in
the open under the color of fighting corruption, such
as that carried out by Banco Latino when it brought
a lawsuit in the United States against former board
members of this banking institution to benefit U.S.
lawyers with million dollar professional fees, failing
to pay the Luxury and Wholesale Sales Tax to the Nation's
Treasury and withhold any income tax, an duty provided
by Law on any professional service payer.
David Castro Arrieta moved the Criminal Public Wealth
Safeguard Trial Court Judge of the Judicial District
for the Caracas Metropolitan Area to start a "notitia
criminis" investigation to determine whether
a crime was committed, and in the event this were
established, the identity of any perpetrators, accomplices
complainant mentioned the specific cases of the well-known
and above-mentioned charges by the U.S. law firms
of Ginsburg Feldman & Bress and Baker & McKenzie
which were repeatedly in breach of the duties to the
Nation's Treasury for more than one year.
his brief, attorney Castro Arrieta furnishes a piece
of evidence in the form of a story published in the
daily newspaper El Nacional on May 6, 1996, showing
a memorandum sent by Francisco Palma Carrillo, a member
of the then Latino Board of Directors (also a member
of the Baker & McKenzie law firm), to Hely Fernandez,
the Institution's Executive Vice-President, on January
20, 1995, which contained as follows: "I am enclosing
herewith an invoice for US$53,986.97 from the law
firm of Ginsburg Feldman & Bress and one for US$86,531.48
from KPMG. Both of these invoices must be paid with
a check made out to Ginsburg Feldman & Bress,
since they will take care of paying KPMG. Moreover,
another US$50,000.00 check should be issued to Ginsburg
Feldman & Bress. This is an advance on the payment
for third-party professional services rendered by
said law firm."
to the above instructions, there are copies of the
checks drawn on Latino overseas accounts in the absence
of any obstacle or monitoring. These amount to 24,834,006.20
and 64,638,487.00 bolivars respectively at the then
current exchange rate of Bs.460.00 to the dollar.
these documents don't show any income tax withholdings
or Sales and Luxury Tax payments. Moreover, the office
of the Chairman of the Board of Banco Latino paid
US$480,423.06 (220,994,607.60 bolivars) to the firm
of Ginsburg Feldman & Bress for another invoice
which also fails to include any provided tax withholdings,
even though it was approved by attorney Maria Eva
Salazar Hobaica, as indicated by her handwritten initials
WAS THE JUDICIARY MANIPULATED?
is such an ongoing series of serious scandals in the
country that they go unnoticed. One is bigger than
the other in a never ending merry-go-round which undermines
the ethical foundations of the Nation, whose public
and often private sector officials are the principals
of unlawful acts that go unpunished.
has become entrenched for those in power, and they
use it shamelessly. Strikingly enough, former Banco
Latino Board Member Francisco Palma Carrillo was a
partner in the firm of Baker & McKenzie, one of
the law firms that benefitted from the million dollar
windfall set up for the payment of professional services.
the Bank had everything planned. The Hon. Eunice Leon
Visani, Acting Safeguard Court Judge, is the aunt
of Maria Eva Salazar Hobaica, the person who authorized
most law firm payments.
amongst the documents checked, there was one invoice
sent to Jose Manuel Aguilera at Banco Latino by the
firm of Baker & McKenzie, mentioning a charge
of Bs.249,090.00 for expenses for "informational-type
meetings and telephone conversations. Meeting with
the Hon. Judith Brazon, Third Criminal Banking Court
Judge, involving the action."
other than a transnational firm charges the Venezuelan
Government for a meeting with the judge trying the
case of Latino, a Government bank!
fact, together with the invoice and everything else,
could show that this law firm was influencing the
Judiciary (particularly the Judge investigating the
case at that time) and prior to the issuance of several
invoice showing the word "approved", written
by attorney Hobaica, includes no indication of any
applicable tax withholdings or mention of any Luxury
and Wholesale Sales Tax. Additionally, this approval
contains no tax payment instructions.
an affiliate in the country, just the above law firm's
invoices sent to Banco Latino during the preceding
year amounted to 28 million bolivars.
THE LIST OF BENEFICIARIES
in Washington, D.C., the law office of Ginsburg Feldman
& Bress is shown as the top recipient of all professional
fees paid overseas. Irrespective of their receiving
most sums invoiced for professional services rendered,
they did the same thing with regard to fees for other
subcontractors or persons for whom they brokered.
to Venezuelan law, it may be inferred from this that
this law firm was a Withholding Agent for any taxes
incurred as a result of the other subcontractors paid
by Ginsburg Feldman & Bress.
by Banco Latino, S.A.C.A., the firm provided advice
to Banco Latino, S.A.C.A., Fogade and other residents
of the country on bringing an action for damages against
former Latino board members.
order to provide their services, attorneys from the
above law firm spent a substantial portion of their
time working in Venezuela. Firm employees and jurists
came to Venezuela repeatedly, while staying for weeks
or months in Latino's offices.
and Edison, Baker & McKenzie, Holland & Night,
Gunster Yoakley and KPMG are other non-domestically
domiciled firms on whose behalf Francisco Palma Carrillo
ordered payment to Ginsburg Feldman & Bress.
in Chicago, Baker & McKenzie is the home office
for that bearing the same name established in Venezuela,
in which Palma Carillo is a partner, the person who
recommended and executed the agreement with Ginsburg
Feldman & Bress.
to KPMG, it is a U.S. accounting or auditing firm
that has numerous associates or affiliates throughout
the world, just like Baker & McKenzie. Alcara
Cabrera Vasquez & Asociados, Banco Latino's external
auditor, is the KPMG affiliate in Venezuela.
offices in Venezuela, the law firms of Pescifeltri
Diaz Cañabate Perales y Asociados, Escritorio
Grunburg, Baker & McKenzie, Araque Reyna, De Jesus
Sosa Viso & Pittier, Torrez Gil Plaz Araujo y
Asociados, Ivan Valera Delgado, Salaverria Reyes y
Ramos and Carlos Eduardo Gomez y Asociados and a few
others should be devoted a whole paragraph to themselves.
Castro Arrieta's complaint moves the judge to start
an investigation of both the above Venezuelan firms
and the Bank in connection with meeting their tax
liability. For such purpose, he suggests that an itemization
be requested of each and every invoice for professional
services rendered paid to Banco Latino.
Baker & McKenzie
Valencia Edif. Aldemo, Av. Venezuela Puerto Ordaz
Edif. Torre H, Piso 3 El Rosal Edif. General de Seguros
Calle 139, con Av. 110 Caracas - Venezuela Altos Banco
El Viñedo Apartado Postal 1286 Av. Las Americas
Edo. Carabobo Telephone Numbers: 953-7094 953-1333
Tel. 041-228472 2229 19 Caracas 1010A Tel.: 086 -
Telex: 23133 ABOGA VC
RIF No. J-001156734-8
PISO 23, AV. URDANETA
ESQ. ANIMAS A PLAZA ESPAÑA
ATT. MR. JOSE MANUEL AGUILERA?
FOR PROFESSIONAL SERVICES RENDERED
- CRIMINAL MATTER.
REVIEW OF COURT ACTION. DRAFTING AND CONTINUOUS
OF INFORMATIONAL FAX COMMUNICATIONS.
MEETINGS AND TELEPHONE CONVERSATIONS.
WITH THE HON. JUDITH BRAZON, 3RD CRIMINAL BANKING
JUDGE, INVOLVING THE ACTION.
TOTAL FEES: Bs. 117,600.00
TELEPHONE, PHOTOCOPYING, LOCAL TRANSPORTATION,
GOVERNMENT REGISTRY OF BUSINESS
COSTS: Bs. 130,490.00
TOTAL INVOICE: Bs. 248,090.00
Baker & McKenzie invoice reflecting the meeting
Judith Brazon. This invoice was approved by Maria
The dollars taken out by Banco Latino to pay foreign
law offices or auditor firms didn't just pop up out
of nowhere, but they were taken from the money deposited
by the public and provided by Fogade as capital and
Gustavo Roosen and his entourage owe an explanation
to the Venezuelan citizenry for such action, which
constitutes a taxable act in accordance with the Luxury
and Wholesale Sales Tax Act.
hefty invoices paid by the U.S. law firms generate
a tax which, on the one hand, is to be billed for,
and on the other, transferred to any service recipient,
who will get an offsetting tax writeoff.
to fees paid to law firms established in Venezuela,
it is a fact that in every single case, given their
magnitude (always in excess of 12,000 tax units),
their services were rendered, performed, utilized
and used in the country, both by their provider and
recipient. As a result, this tax must be paid and
billed for. Others that were more honest did withhold
and pay their taxes. However, the complaint filed
by attorney Castro Arrieta highlights that the biggest
breach by Banco Latino S.A.C.A.'s counsel and board
members involved the foreign jurists, inasmuch as
while they were service providers, they were not domiciled
5 of this Act sets forth that "The buyer or purchaser
of any personal property and the service recipient,
as the case may be, have tax payment liability whenever
the seller or provider of the service is not domiciled
in the country."
liable parties are bound by Law to report and pay
this tax both monthly and immediately. In such case,
Banco Latino should have required the inclusion of
the Luxury and Wholesale Sales Tax and see to it that
it was paid, as required by Law.
But it failed to do so, thus generating a boomerang
effect in detriment of its own equity, since it was
losing the 13.5% tax writeoff generated by nearly
3 billion bolivars in invoices, amounting to 375 million
bolivars in Latino asset losses.
"throes" resulting from board member ineptness
is the loss of substantial revenue by the Nation's
Treasury. Latino's officers and board members are
completely liable for this loss, since the service
payer has joint and several liability in the case
of overseas resident companies.
this created more detriment for the Treasury because,
as per the Organic Tax Code, Banco Latino's liability
includes the payment of any penal interest generated
by default, computed at the prevailing market rate,
and any sum for indexing or adjusting for currency
devaluation and interest, thus worsening the scope
of the damage inflicted on Latino's equity as a public
institution. Additionally, this would not serve to
recover any tax write-offs lost by this banking institution,
an irreparable harm caused by the dereliction in the
duty to require a reference to taxes paid on the invoice
and the failure to do so during the applicable taxable
year, resulting in their irretrievable loss. The physical
redressment for this injury to the Nation's Treasury
does not exclude criminal liability for these willful
actions by the parties liable for them, who are the
Bank's board members and officers, together with the
firm of Ginsburg Feldman & Bress.
the actions by Gustavo Roosen and other officers of
this banking institution, who ran it at will, allowed
these fraudulent acts either directly or indirectly.
Nonetheless, if he and the other persons authorizing
payments are legal experts, inasmuch as they are attorneys,
it's beyond comprehension why they failed to discharge
these manifest duties, which are known to everyone
and significant for the Treasury, as indicated by
attorney Castro Arrieta.
this attorney states in his brief that he was struck
by the fact that jurists from a country having a tax
tradition, such as the United States, never looked
into their tax status, not even Baker & McKenzie,
a firm that was closely related to Latino through
board member Francisco Palma Carrillo.
asking what were the attorneys at the Bank's Legal
Department doing is an appropriate question, given
all the work delegated to law offices.
NOT EVEN TERRITORIALITY SAVES THEM
for the sake of argument that the U.S. law firm of
Ginsburg Feldman & Bress does not pay any taxes
because of its status as a foreign entity, the Law
sets forth very clearly that "imported services
are taxable whenever they are rendered, utilized or
used in the country, irrespective of their being contracted
for or paid abroad."
is enough evidence to show that Eugene Propper and
many of his attorneys and employees traveled to and
remained in Venezuela for substantial time. Actually,
they entered the country as tourists at the time there
was a signed agreement binding them to practice a
professional activity within the country for a manifest
profitable purpose. It was known that these people
conducted surveys, held meetings with different Bank
officers, subpoenaed witnesses, coordinated legal
and bank safety activities and met with external auditors,
loan officers and related companies.
as head of the group of U.S. lawyers, Propper coordinated
his work with external Banco Latino attorneys belonging
to the Venezuelan law firms of Pescifeltri Diaz Cañabate
& Asociados and Baker & McKenzie, as well
as with Legal Department Vice-President Eva Salazar
Hobaica and attorneys on the island of Curaçao,
the best way to sue in several countries on the same
it stated that these attorneys, experts and investigators
would interview a large number of people related to
Banco Latino S.A.C.A. prior to its government takeover
to elicit valuable information from them. These meetings
took place at the main offices of the Bank, located
on Avenida Urdaneta, in Caracas.
the complaint by attorney Castro Arrieta sets forth
that they offered "U.S.-type deals" to citizens
with outstanding bench warrants in exchange for their
testimony or cooperation. Of course, if the invoices
for fees submitted by these professionals were reviewed,
it could be verified that they actually provided their
services here for the most part. Therefore, these
acts are taxable, as per the Luxury and Wholesale
Sales Tax Act.
TREBLED ACTIONS AND A MYRIAD OF INVOICES
his eagerness as persecutor, Gustavo Roosen started
a large number of actions against Gustavo Gomez Lopez
for the sole purpose of padding up the invoices, since
they are often the same as those brought earlier.
Lopez was sued in Curaçao for one billion dollars
exactly on the same basis as that for the suits filed
in Miami and Caracas. Clearly, each law firm issues
its own invoice.
Law provides that no one may be tried twice for the
same act. Actually, there may be a basis for inferring
that their intent is illegal enrichment.
A CRIME AGAINST SAFEGUARDING THE PUBLIC'S WEALTH
to this time, there has been mention of the acts which
constitute tax fraud against the country, issuing
from the failure to discharge formal tax duties. But
in addition, they are a crime against Safeguarding
the Public's Wealth because Banco Latino was inflicted
a loss on its equity, amounting to the money it must
pay as a result of its dereliction; however, a loss
was also inflicted on the Nation's Treasury because
it was not able to receive the payment of hefty tax
sums from the foreign law firms and some domestic
all this is not enough because tax laws provide that
tax law crimes become aggravated when these are committed
by government employees and officials, such as the
former board members and employees of Banco Latino,
as found by the Supreme Court of Justice in its recent
a result, the actions by Latino's management and board
members could be within the scope of the Organic Law
on Safeguarding the Public's Wealth, since its equity
is deemed "public", its board members are
considered "public officials" and thus subject
to criminal and civil liability.
the case of Banco Latino's fraud, the different types
of liability fall directly on the members of the Board
of Directors and Government Takeover Supervisory Board
who authorized the agreements with the law firms that
received payments resulting from irregularities. But
moreover, those vice-presidents and managers who authorized
and provided these payments are included in this as
jointly and severally liable.
above-mentioned liable persons may be tried for negligent
embezzlement, as provided in Article 59 of the Organic
Law on Safeguarding the Public's Wealth, which sets
forth a penalty of three months to one year of imprisonment.
one of these individuals, Francisco Palma Carrillo,
who, in addition to being a Latino board member, was
a partner in one of the law firms (Baker & McKenzie)
that received illegal fee payments, should be viewed
in the light of Article 287 of the Criminal Code,
which provides for a penalty of two to five years
of imprisonment for any conspiratorial conduct for
the purpose of committing crimes, even if these were
not committed. By and large, and with regard to such
negligent embezzlement, the motion for starting a
"Notitia Criminis" investigation filed by
attorney Castro Arrieta underscores that it should
be borne in mind that the potential parties involved
are legal experts and that there were repeated payments
resulting from irregularities, constituting a crime.
should be borne in mind ---as per the brief--- that
Eva Salazar Hobaica and Francisco Palma Carrillo are
attorneys with a well-known track record, as well
as members of two boards of directors, just like Gustavo
Roosen, the former Chairman of the Board of the institution,
and that there are former board members, such as German
Garcia Mendoza Velutini, who would have never made
the decisions he made at Banco Latino when running
his family's bank."
Venezolano de Credito has always been though of as
an extremely conservative bank. It has not become
involved in Venezuela's development, and its passive
attitude has irritated many sectors.
other important matter that should be taken into consideration
is the fact that banks have sophisticated systems
for detecting the different types of tax liabilities
and a qualified staff for discharging these duties.
a result, being the second in the country and the
leader of its Financial Group, with more than forty
years in the banking industry, the mistakes made by
Banco Latino are unaccountable, while having state-of-the-art
equipment to ensure the discharge of the different
types of tax liability.
it may be inferred that any possible transgression
of provisions as routine as those on taxation involves
tampering with administrative, accounting and system
procedures, which could all be determined in a pre-indictment
crime mentioned in a "Notitia Criminis"
and worthy of investigation is that involving any
possible corruption of officers who may have received
any compensation or other unowed profits either for
themselves or others.
Castro Arrieta states that the payment of fees by
a Government bank to attorneys from a law firm which
is the workplace of the officer of the bank that pays
such hefty fees, which were not appropriately reported
as income tax, "constitutes a strange circumstance".
addition, he states that obviously, the acting attorney
and the other members of the Board of Directors provided
earnings "to a third-party", thus, leading
to an analysis of the provisions in Article 65 of
the Organic Law on Safeguarding the Public's Wealth.
could be in the presence of some huge earnings at
the expense of the Treasury," ---as added by
attorney Castro Arrieta--- "since the recipients
of these payments stood to benefit when their true
earnings were not accounted for while failing to bill
for the Luxury and Wholesale Sales Tax and in the
absence of any income tax withholdings, in addition
to the prejudice caused by them because of this dereliction."
THE PARTIES TO BE SUBPOENAED
addition to obtaining all the documents set forth
in his brief, attorney David Castro Arrieta suggested
to the Court that he subpoena those legal professionals
who furnished their services to Banco Latino ---as
per reports on the media---, so that they can testify
whether or not there were any tax payments. The attorneys
included on this list are as follows:
Alejandro Alfonso Larrain Reaco, the owner of the
firm of Baker & McKenzie in Venezuela, a partner
in the transnational company bearing the same name.
Francisco Palma Carrillo, senior partner in the above-mentioned
firm. He was a Banco Latino C.A. board member and
a member of the Boards of Directors that hired the
law firm of Ginsburg Feldman & Bress and the other
Mario Pescifeltri Martinez or Joaquin Diaz Cañabate,
owners of the firm of Pescifeltri Diaz Cañabate
Perales y Asociados. Manuel Perales, unnamed partner
in the firm, was Latino's Corporate Comptroller for
ten of the last eleven years preceding its government
takeover. This law firm furnishes advice to Ginsburg
Feldman & Bress, and it reportedly received 50
million bolivars for professional fees in 1995.
Manuel Torres Nuñez or Rodolfo Plaz Abreu,
Master Partners in the firm of Torres, Gil Plaz, Araujo
y Asociados. Being Banco Latino's tax advisor, this
firm should testify whether it actually billed for
these taxes and on the advice it provided to Banco
Latino in this regard.
Benjamin Grunberg. This personal firm has provided
advice to Banco Latino in excess of ten years.
Ivan Varela Delgado is listed as an apparent mercantile
and labor advisor, a person who received over 10 million
bolivars from the Bank, as per the media.
Luis Alfredo Araque, owner of or senior partner in
Araque Reina de Jesus Sosa Viso y Pitier.
Eugene Propper, a member of the U.S. law firm of Ginsburg,
Feldman & Bress. He is to shed light on this tax
omission, but also on any possible violation of other
laws, such as those involving his entry in Venezuela
for the purpose of working without requesting a permit
or obtaining appropriate visas.
Maria Eva Salazar Hobaica, former Legal Department
Vice-President of Banco Latino S.A.C.A., who performed
and is directly responsible for the above actions.
The members of the two preceding Board of Directors
of Banco Latino S.A.C.A. and its last Government Takeover
Outgoing Board, chaired by Alfonso Espinoza and comprised
of Gustavo Roosen, Francisco Palma Carrillo, Nelson
Olmedillo, Carlos Emerson, Carlota Parodi Nuñez
and Alejandro Uzcategui.
Preceding Board, chaired by Gustavo Roosen and comprised
of Francisco Palma Carrillo, German Garcia Velutini
Mendoza, Nelson Olmedillo, Jacques Vera, Luis Fernando
Sanchez, and Carlos Emerson.
Last Government Takeover Supervisory Board, chaired
by Gustavo Roosen and comprised of German Garcia Velutini
Mendoza, Edgar Dao, Celso Dominguez, and Jacques Vera.
Coat This card is valid for six [American Airlines
of Arms of the months after date of issue. Logo]
5562405 Entry Card
1. Last Name 2. Surname 3. Issuance No.
No. 140 977009
4. First Name 5. Middle Name 6. Identity Card No.
7. Sex 8. Age 9. Occupation Code 10. Nationality
X 48 Atty US
11. Passport No. 12. Type of Visa 13. Length of Stay
Tourist 12 Days
14. [Illegible] 15. Place Issued
16. Address in Venezuela
Issuer's Name (Official Use Only)
Validator Stamp & 19. Air 23. Air
Signature 20. Carrier 21. Destination
24. Carrier 25. [Illegible]
Venezuelan Entry Card for Eugene Propper, of the firm
Feldman & Bress, showing a TOURIST Visa
when he gainfully practiced his legal profession.
NEW BANKERS EXCEEDED
in 1994, during the months subsequent to the financial
crisis, no one could imagine that all the "breast-beating"
in segments linked to both the Government and the
Venezuelan economy were just scenes from the play
that finally became the alleged "crackdown"
on corrupt bankers.
holding the stock in collapsed institutions, the Bank
Insurance and Protection Fund (Fogade) decided to
appoint Boards of Directors entrusted with protecting
the large number of funds taken over by the Government
to bail out these banks. These Boards were made up
of individuals with a high degree of responsibility,
honesty and professionalism. At least, this is what
we Venezuelans were told, while having low credibility
"defenses" and being tired of finding out
about so much ongoing corruption.
proclaimed by President Rafael Caldera from the time
he took office as the new Administration's cornerstone,
austerity was the paramount standard for these Boards
apparently, while dripping in all the mud originated
in the people's contempt, fugitive bankers would be
replaced by exceptional model citizens, but that wasn't
the case. Soon enough, the new bank managers proved
to be more deceptive and inept, in other words, crooked
---some even going overboard--- than the former owners
of the banks taken over by the Government.
media started to play their role as Community interest
watchdog, and irregularities were quickly brought
into the limelight, but no one was shaken by this,
not even the applicable judicial authorities, since
this was not in detriment of the interests of private
bankers this time, but those of Government institutions,
such as Fogade and the Financial Emergency Board.
Mr. Gustavo Roosen takes the cake when it comes to
irregularities during his questioned tenure as head
of Banco Latino S.A.C.A., while acclaimed by those
irregularity for which "corrupt bankers"
received substantial criticism is engulfed in all
the anomalies that started to tarnish the image of
immaculate post-Government takeover managers, this
being the "doctoring up" of or tampering
with institutional balance sheets, and Gustavo Roosen
was the best example of this.
complaint filed by attorney Divo H. Saldivia Leon
with the Prosecutor for the Fifth Government Attorney's
Office for the the Caracas Metropolitan Area's Judicial
District stated that there was fraud on Banco Latino's
balance sheets for 1995, being extremely significant
as to the institution's assets, to the extent that
its financial statements as of August 31, November
30 and December 31 for said year do not reflect the
Institution's real financial position.
Saldivia Leon's brief maintains that this tampering
did not just result from happenstance or even less
from an inadvertent mistake, but rather, this was
done with "specific criminal intent"; that
is to say, a whole scenario was contrived to cover
up the real position of the Bank.
this is a serious act, Latino decision-makers acted
with amazing impunity when they rejected, repeatedly
obstructed or prevented the completion of the audits
attempted by the Bank Superintendent's Office.
this attorney further states that "they ignored
every single observation and requirement stated by
the Bank Superintendent's Office."
endorsed this unlawful conduct by the officers of
this Bank? To what extent can there be any argument
for the political or economic validity of this conduct,
which is in conflict with banking practices? These
are the key questions in the complaint.
gain an understanding of the myriad of balance sheet
violations by Banco Latino's board members, a piecemeal
review must be conducted, starting with an explanation
of the reserve fund shortages estimated on the basis
of the value of the Institution's assets.
a result, it may be inferred from the evidence which
was submitted that the banking institution's decision-makers
did not provide for reserve funds in accordance with
applicable banking practices. This irregularity became
uncovered in the Superintendent's Office audit report,
dated August 31, 1995, but reserves continued to be
willfully concealed on subsequent balance sheets,
which means two things, according to this jurist:
first, such balance sheets do not reasonably reflect
the Bank's financial position, and second, this operation
was performed in disregard of the warning contained
in the above-mentioned audit report, thus making it
clear that there was intent, persistence, purpose
and recurrence as to maintaining any tampering or
above-mentioned document states that the reserve fund
required for the accounts in "Credit Portfolio
and Other Assets" was 53,734,289.00 bolivars,
but on the date in question (8/31/95), the Bank just
kept a reserve fund of 37,754,954.00 for such item,
resulting in a reserve fund shortage on the order
of 15,979,335.00 bolivars.
this fact, the Bank Superintendent's Office stated
that Banco Latino "is to increase its asset contingency
reserve fund by the uncovered sum of Bs.15,979,335.00,
pursuant to Article 165 of the General Law on Banks
and Other Financial Institutions."
order to understand the seriousness of this action,
this banking institution's equity capital and reserves
amounted to 11,516,481.00 bolivars on August 31, 1995,
in other words, the adjustment requested was in an
amount exceeding that of its own equity capital and
Superintendent's Office ascertained the negative implications
for Latino when it concluded that the Bank's assets
had been completely lost at that time: "The asset
valuation reserve fund shortage of 15,979,335.00 as
of 8/31/95, coupled with net worth reductions of 24,894,000.00
and the losses of Bs. 143,089,000.00 determined in
the trust area, impact the current capital reserves
of Bs. 16,147,318.00, placing the Institution's position
within the scope provided in Article 169 of the General
Law on Banks and Other Financial Institutions."
the decision by the Superintendent's Office was subject
to challenge, there was no complaint by any of Latino's
managers, and they merely ignored in an irresponsible
manner the requirements by the Bank Superintendent's
his appearance before the Nation's Congressional Comptrolling
Committee in July, 1995, Franciso Debera, the Superintendent
himself, explained that when he assumed his position
in March of that year and after the decision to convert
Latino from a Government owned to a regular bank,
his office made some observations, particularly because
they thought that the Institution had to be capitalized
and that its non-performing assets, internal audit
and administative practices had to be examined, ".
. .the decision was to let the Bank keep going. Now,
what were the changes and what did we find in subsequent
audits? As far as reserve funds go, there was no doubt
that its position had not improved on the 28th, but
instead, it had become worse, and this is reflected
in our last report, issued on February 28." (excerpts
from Debera's congressional appearance).
total indifference displayed by its accountants, external
auditors, accounting area officers or managers shows
that there was a clear order to disregard the directions
by the Superintendent's Office, whose records and
reports have evidentiary value, pursuant to the General
Law on Banks and Other Financial Institutions.
per attorney Saldivia Leon, the Court examining the
complaint can issue the applicable bench warrants
just on the basis of the reports.
WHAT COULDN'T BE DOCTORED UP
something up involves flaw corrections, aspect enhancements,
and weak/negative point cover-ups. Otherwise, ask
any cosmetology specialist. As a result, it's mighty
strange that Roosen and his group of "doctors"
did not seek a way to avoid their being "nabbed"
for their tricks, allowing such clear falsehoods on
the balance sheets.
reviewing the above-mentioned audit report, it may
be found that this Latino crew acted with unprecedented
impunity in Venezuela, as seen below:
ledger for account 1701, referred to as "Deferred
Credits", deserves special credit, having serious
flaws, since it fails to show the current ledger balance
because it does not include any balances deferred
as a result of portfolio restructuring, portfolio
purchases, offset money market operations and deferred
overdrafts, which are prepared separately."
it states that one of the most significant flaws in
Banco Latino's accounting system is that credit portfolio
ledgers do not reflect any payments of principal in
the case of customers that don't have enough funds
in their checking accounts to pay off their interest.
As a result, the negative balance shown is "overestimated".
explanation continues as follows along these lines:
"On 6/30/95, the Bank wrote off 45,210,724,000.00
bolivars from the Credit Portfolio, which was thought
to be unrecoverable, charging this to the respective
reserve account. This notwithstanding, no applicable
entry was made in Account 7406, referred to as "Bad
Debt Write-Offs", which had an entry of just
29,343,883,000.00 bolivars during September of the
current year, there being 15,866,841,000.00 bolivars
in non-journalized credits."
means that even though a substantial portion of its
Credit Portfolio was irrecoverable, Banco Latino did
not reflect this on its balance sheet in a maneuver
that sought to conceal the real position of the Institution
with regard to the sum of its outstanding credits.
sums indicated in the report substantially exceed
Banco Latino's equity capital and reserves. As a result,
Saldivia Leon stated that there was such tampering
with its accounting that the balance sheet as of June
30, 1995 and those approved thereafter with the same
omission do not reasonably reflect the Institution's
financial position, which action is a crime in and
THE WELL-BALANCED OPERATION MOCKERY
argued by attorney Divo Saldivia Leon, anyone related
to banking knows that generic accounts or "junk"
accounts ---as they are also termed in the lingo---
are resorted to more often than not for doctoring
up a balance sheet.
he states that any banker with shady practices mirrors
them in the 7.00 account, designated as "Other
Assets", or concocts any other non-financial
income originated from bank brokering activities whenever
he does not wish to write off or form a reserve fund
with anyone or more of his asset accounts.
again, Gustavo Roosen is a good example of this type
of machinations. In early 1996, it spread like wildfire
that Latino had recovered to the extent that it had
happened to have a well-balanced operation.
to uncover a trick of this sort, we must go back to
December 31, 1995, when Banco Latino's balance sheet
showed a negative operating balance of 11,783,923,764.83
bolivars. But such negative result became commingled
with the banking institution's "other income",
which, as if by magic, amounted to that very sum,
Bs. 11,783,923,764.83, "to the penny, like clockwork".
explanation for this crooked practice to conceal the
Institution's run down position is accounted for in
a portion of Superintendent's Office Memorandum No.
6223, dated 12/22/95.
the audit, it was impossible to ascertain the degree
of realization of both the secondary/related operations
income and the other income included in the sample
selected, inasmuch as for this evaluation, the Institution
did not furnish enough information, as previously
requested on the memoranda dated November 10, 13,
16, and 21 of the current year."
the manipulation by Banco Latino's management of ordinary
income figures is a very serious matter, entering
several receivables as such and additionally submitting
as income several items whose validity was not successfully
ascertained by this regulating body. The report states
that Latino chose to journalize over 20 billion bolivars
as income, of which 11 billion had not been received,
in other words, more than half.
the complainant infers that over half of this income
is fraudulent because it was never available to the
bank, and this was reflected on its records as having
been received, and even worse, it used those funds
without their ever existing.
there was mention on different media that Banco Latino
charged Fogade for the above fraudulently journalized
income, as per Saldivia Leon, and he additionally
stated that even if this fact were true, the Bank's
loss (which was not projected on its financial statements)
would amount to 16 billion bolivars, showing that
the balance sheets as of June 30, November 30, and
December 31, 1995 were fraudulent.
following is another interesting quote taken from
the document's findings and used by this attorney
in his complaint:
run down assets caused a financial income shortage
(7.502 billion bolivars), generating a negative profit
margin which is offset by the Institution with income
from uncollected receivables (23,173,000,000 bolivars)
originating from its debt to Fogade. It may be inferred
from this that even when the figures reflected on
the financial statements show a positive accounting
result, this is not the case, because the above income
has not been physically received, yielding negative
operating results of 25.604 billion bolivars."
Saldivia Leon proclaims: "Your Honor and Mr.
Government Attorney, we fail to understand how or
why the Superintendent's Office, in view of its own
heretofore- transcribed statement, did not go to the
police to have them raid Banco Latino in order to
arrest the perpetrators of such malfeasance."
GUSTAVO ROOSEN'S LAUNCHING PAD
a typical modern-day manager, Gustavo Roosen is well-aware
of how powerful an image can be. As a result, he was
the mastermind of the advertising campaign that showed
the existence of "Latino's miracle", which
was nothing but another sham. Actually, many staff-members
complained that the Marketing Department, led by Mariadela
Linares, applied pressure to have them sign a sympathy
letter, thus validating Roosen's squandering stewardship.
he took over Banco Latino S.A.C.A., first as Chairman
of the Government Takeover Supervisory Board and then
as Chairman of the Board of Directors, he invested
a whopping sum of money to conduct a radio, press
and tv campaign for the purpose of projecting to the
public the genesis of a "role model bank".
his substantial managerial ability and his qualified
management team were "sold" specifically
on the ads.
much fuzz on the broadcast media, while Latino was
going "bankrupt" and tried to conceal its
negative results with highly doctored balance sheets.
But the charm was extremely short-lived, and this
manager's launching pad was non-operational.
congressional appearance by Bank Superintendent Francisco
Debera on July 17, 1996 raised many dubious issues
involving this "role model" bank.
took special note of the issue of the misleading advertising
that intended to rave about a bank on the verge of
disaster. Particularly, there was much criticism of
Roosen's allocating over 1.2 billion bolivars in pre-purchased
television time for his "showing off". During
the debate, Representative Luis Rosendo Hernandez
said that: "In comparison with private institutions,
this is the bank that buys more pre-purchased advertising
on tv channels. New Chairman of the Board Rolando
Salcedo Thielen said that he had to assign pre-purchased
ads to OCI because of their significant volume."
addition to having the president's protection, Roosen
secured his control through massive advertising purchases,
giving his "arguments" a lot of clout. Strikingly,
a bank in such terrible position had enough funds
to buy this space.
he was diverting funds to conceal and cover up his
intentions. While having the floor, Hernandez also
stated that "Now, this role model bank is accepted
as a role model of everything that shouldn't be done
in a financial system; clearly, there was an attempt
to deceive the Venezuelan public; clearly, the factual
contents of these campaigns were fraudulent, and some
people must be responsible for this."
December 31, 1995, Banco Latino's union representatives
sent a letter to the Board of Directors and its then-Chairman
Alfonso Espinoza, reflecting very clearly all the
mistakes that were being made at the Institution.
Taken from this letter, the following paragraph clearly
speaks for itself:
fail to understand why if Banco Latino used to manage
the biggest and most significant trust portfolio in
the country, showing the Bank's effectiveness and
efficiency, it purchased new software at a substantial
cost to manage a much smaller portfolio; moreover,
two companies were hired to take charge of training
our trainees, incurring an unnecessary expense, in
our belief, since the Bank's infrastructure is suitable
for this, as it has thus shown. An authorized agency,
such as INSBANCA, could have been used for all this.
In addition, it should be further said that the Bank
"HAS NOT" held any competitive examinations
for or requested any credentials from the Institution's
skilled employees to have them apply for a myriad
of positions created, causing a substantial expense
increase by bringing in new high-salaried employees.
As a result, employees could hardly be asked to work
hard or make any sacrifices."
BAD REASONABLE MAN
Caldera's Administration spared no effort in furnishing
any support needed by the new bank managers who replaced
the former owners of the collapsed institutions. This
support was not only financial, but it transcended
to the political arena, as evidenced by the fact that
even though time proved that they turned out to be
worse managers than the "corrupt bankers",
they go on their merry way, without having to answer
that caused huge government fund losses because of
their dismal performance remain in their positions
or occupy other high ranking positions in the public
limelight, while exempted from legal, political and
this context, the case of Gustavo Roosen is extremely
well-known. The Government Takeover Supervisory Board
he chaired was given cash funds that exceeded by 100%
any Banco Latino deposits (sight, savings, term, money
market, trust fund, liquid asset funds -consortium-
and other affiliates) that existed at the time it
was taken over by the Government, and additionally,
he handled the assets included in its private equity
(the loan portfolio and its applicable collateral;
investments in securities and stock; banks in Colombia,
Miami, and Curaçao; government bonds; personal
property; buildings, plus a few other items).
Roosen and anyone facing a similar crisis had a very
tough situation. But there is no explanation for such
dismal performance, when he was given more than 350
billion bolivars in cash; in other words, over 100%
of what Banco Latino had to return to the public,
as indicated earlier, in addition to all the assets
of the institutions. So here we have accusers and
persecutors being after the head of the fugitives,
the "corrupt bankers", but however, they
ignore the protection enjoyed by other important figures
that seem to be untouchable despite their criminal
even the Bank Superintendent's Office could handle
the politically-superior Roosen and his group. He
never furnished the information requested by this
regulatory agency and just spent fraudulent income
like a drunken sailor and published doctored balance
was never a stop to the destructive actions by Roosen's
team. The report by the Superintendent's Office for
August, 1995 contains indisputable evidence of a violation
of the Trust Fund Act. In principle, it must be said
that the Superintendent's Office stated directly that
the balance sheet for Banco Latino's Trust Division
. .according to received supporting memoranda dated
1/23/95 and 12/8/95, there is evidence that the Institution
wrongfully entered some amounts that do not belong
in such assets, thus limiting the degree of objectivity
and reliability that should be reflected on a Trust
Fund Balance Sheet."
violations committed by Roosen and company involve
the duty to maintain Bank and Trust Fund assets separate
and manage everything as a "reasonable man of
ordinary prudence", as well as the ban on investing
in companies where managers have an interest.
To begin with, as disclosed in the above-mentioned
report, the Superintendent's Office conducted an audit
where it found that "the place where custody
certificates lie in the vault is not separated from
trust fund assets or securities purchased through
its own operations."
it stated that as a result of security vault repair
problems at Banco Latino "all trust operation
securities, as per the Securities Manager, were taken
to the Venezuelan Central Bank and placed in its custody."
it also highlights that custody certificates issued
by the Venezuelan Central Bank never identify the
trustee as the owner of these securities (22.7 billion
bolivars), just showing Banco Latino as their holder,
preventing any distinction and/or differentiation
as to which securities correspond to the Bank's own
operations and which originated from trustee services
this "reasonable man of ordinary prudence"
managed these funds with excessive imprudence while
being in conflict with the duty imposed upon him by
accounting and non-accounting information on trust
fund operations make it impossible to find out thoroughly
"any data and features of entered operations;
for instance, the information requested for the audit
was furnished a month and a half after starting the
audit of said area."
there is administrative chaos at Latino. There is
no exact way to determine the use or application of
funds originated from each trust, "inasmuch as
the amount for assets held in trust becomes a "kettle
fund" that is equally shared by all trust funds,
thus making it impossible to determine exactly the
costs and income applicable to each of them,"
as literally stated in the audit report.
mess is such that the trust fund portfolio is often
based on matured securities, causing the loss of any
interest income which would accrue as of such maturity
or drawing date; and probably, the settlor is the
bearer of this cost, which is either concealed from
the customer or absorbed by the Bank, increasing its
nobody understands how after two years of paying different
consultants more than one billion bolivars, it is
a known fact that "the Institution did not furnish
any supporting or corroborating documentation for
the original agreements of such operations" as
to 92.6% of all trust funds on which loans were granted.
ON THE "HOPEFUL ROADS" TO CANTV
time went by, feeling he was a front page celebrity,
Gustavo Roosen cherished the idea of reaching the
top in the form of becoming the CEO of Compañia
Anonima Nacional de Telefonos de Venezuela (CANTV),
the Venezuelan telephone company. To achieve this,
he would get in the good graces of anyone he could,
and while doing this, he used his position as Banco
Latino Chairman of the Board and board member for
manipulations in benefit of the phone company.
fact is that Roosen violated the provision of the
Trust Fund Act that forbids any investments in companies
where managers have interests.
he overlooked this provision in order to be appointed
as CANTV's CEO, and from his position in both government
institutions, Banco Latino and the phone company,
he would manipulate stock and funds in his own benefit
and in detriment of this banking institution and its
Trust Department customers.
report sets forth that Banco Latino purchased CANTV
stock from funds available to trustees, inasmuch as
said stock is in Banco Latino's name, never in CANTV's
name, this being a flagrant violation of the Trust
document reads that "while Agreement No. 0398
for 15,714,286 shares of CANTV stock was entered in
the ledger at a value of Bs. 3.591 billion, upon reviewing
its provisions, they show that it is valued at Bs.
579.9 billion. There is no knowledge of the existence
of any other agreement which could account for such
a significant difference."
it states that it is worthy of note that the Institution
does not have the required audit processes to verify
the book and/or market value of the CANTV stock held
in trust and then value appropriately the agreement
though the Superintendent's Office failed to mention
this, the agreement is overvalued by 3.012 billion
bolivars, which is equal to more than 25% of the Bank's
assets, based on the principle ---which was rejected
by the Superintendent's Office--- that this banking
institution does have assets. Clearly, Latino's Trust
Division was so indulgent with this flaw that it allowed
such a high percentage of the Institution's assets'
the Superintendent's Office report also discloses
that the negotiable instruments purchased for 53 million
bolivars under the Trust Agreements "do not identify
at any time that settlor CANTV is their holder. Moreover,
the said instruments were furnished eight days after
the audit, remaining matured (as of July, 1995) and
unredeemed for cash."
means that these securities were issued to Banco Latino,
which, as a result, is their holder or purchaser.
PLUNDERING OF GOVERNMENT FUNDS
per the analysis contained in the audit reports by
the Bank Superintendent's Office, the fraudulent use
of government funds on the part of at least two members
of Banco Latino's Board of Directors and two top executives
is also detectable. These officers' actions meet the
requirements used by Banking Criminal Courts and the
Safeguard Court of Appeals to issue and uphold their
bench warrants for this crime.
been a member of Banco Latino's Government Takeover
Supervisory Board and Board of Directors, Francisco
Palma Carrillo is one of the above-mentioned directors
who might be prosecuted. Given his position with the
banking institution, he exerted influence so that
Latino would hire the law firm of Baker & McKenzie
and have it benefit from significant payments for
professional fees both in bolivars and dollars.
Carrillo is a senior member of and partner in the
above-mentioned law office, which had received up
to December, 1995 the sum of Bs. 27,786,959.40 and
US$15,838.20 for services rendered. At that time,
Baker & McKenzie was the third that received the
most money of the 17 hired by Latino.
Mr. Palma simultaneously held the positions of representative
of the Government's interests on the basis of his
employment with Banco Latino and representative of
his own financial interests as member of the law office
of Baker & McKenzie.
coordination with attorney Eva Salazar Hobaica and
officer Rosa V. Tinedo, Mr. Palma certified payments
in excess of 300 million dollars (about 1 billion
bolivars) to the firm of Ginsburg Feldman and Bress,
including payments to Baker & McKenzie associates.
of this is contained on page 12 of Invoice No. 95268534
for $480,423.06 paid to the above-mentioned law firm
headquartered in Washington.
is also certain that Gustavo Roosen used his position
of Chairman of the Board and Board Member of Banco
Latino for personal gain by manipulating Trust Division
records and using trust settlor funds to make investments
in securities and stock in the company where he has
interests and is Chairman of the Board.
Roosen ordered payments to "other domestic institutions"
without specifying them and in the absence of agreements
to recover such payments, as shown in the letter mentioned
order to pay comfortably with Government funds, Roosen
used a double standard. On the one hand, he would
tell Banco Latino that payments would be eventually
reimbursed by the other institutions that they were
suing, and on the other, he would indicate to those
institutions that they should not pay anything, since
Latino would bear all the expenses.
outrageous use of Government money by manipulating
Banco Latino funds is a typical case of corruption
because the members of the Board of Directors and
top officers of that institution used their positions
extensively to control any accounting information
that it furnished to the authorities, the public and
the depositors to benefit themselves from compensation
increases and bond redemptions.
bonds and compensation ended up in the hands of the
Bank's board members and officers on the basis of
the "doctored" balance sheets which they
themselves submitted and signed. In other words, Latino
was cunningly swindled by the Boards of Directors
chaired by Roosen and Alfonso Espinoza.
466, Section 5 of the Criminal Code states: ".
. .6 to 18 months of imprisonment for anyone who defrauds
another under the pretext of an alleged compensation
to public officials. . ."
AN INEPT CHAIRMAN OF THE GOVERNMENT TAKEOVER SUPERVISORY
Banco Latino's Recovery Plan, for which the Government
Takeover Supervisory Board, chaired by Roosen, received
350 billion bolivars is much like a windfall received
by the Bank's board members themselves, and 214 billion
bolivars, that must be returned to the Government,
the Superintendent's Office required that it be paid
immediately, this loss ---ranging in the millions---
was made possible by an inefficient Government Takeover
Supervisory Board. As per the report, the funds are
broken down as follows:
-Migration Interest: 26 billion
-Financial Emergency Act Receivables: 15 billion
-Losses as of 8/30/95: 16 billion
AMOUNT: 214 billion
Such heavy spending shows considerable bank management
ineptness, as stated in the Superintendent's Office
report dated December 22, 1995.
above-mentioned position reflects a Financial Structure
that is not supported by profitable current assets
of an operating Financial Institution, causing a difference
between the degree of realization of its assets and
its liabilities, forcing it to resort to costly indebtedness
through overnight loans. . ."
mistaken decisions by Roosen and his team to become
filled with liabilities without any liquid assets
to offset them has no relation to preceding managers,
to the former owners.
difference lies in that the former managers were denied
Government support, and their mistakes were labeled
The report is filled with examples of Roosen's undoubtedly
high degree of managerial ineptness. For instance,
Banco Latino reflected on its financial statements
as of November 30, 1995 income from interest on the
finance of migrations for 26.173 billion bolivars,
"which conflicts with the Institution's financial
position because this [interest] is not settled monthly
or paid in cash, forcing the Bank to resort to the
interbank market and the Venezuelan Central Bank to
meet the costs of its liabilities and withdrawals
of deposits by the public, thus incurring high finance
charges. . ."
made some wrong calls. To name one, Transformation
Expenses had grown by 17.38% on June 30, 1995 as opposed
to December 31, 1994, and amongst these, wages and
other personnel expenses (3.688 billion bolivars)
had swelled by 79.98%.
---as stated in this document--- "Operating Expenses
at 5.195 billion bolivars are not in accord with the
position of this non-profitable financial institution,
amongst these, consultant expenses show a figure of
1.022 billion bolivars containing accruals for the
two most recent biannual periods up to 11/30/95."
expenses include those paid to domestic and foreign
companies for consulting services "which have
not generated any foreseeable specific actions for
implementing plans and policies leading to the Bank's
gradual and definite recovery. . ."
Roosen's people made the highly serious mistake of
doing away with systems and audits for no reason whatsoever,
but the fact that these had been implemented by the
report states that "after the Government took
over the Bank, purchase committees were discontinued."
audit also detected that prior to the Government's
taking over the Bank, there was a committee that regulated
software and hardware purchases, "and it has
not been reorganized, stopping any existing communication
between the Business Units and the Vice-President
examination highlights the "inexistence of and
non-compliance with audits and procedures, ensuingly
increasing costs, causing unnecessary expenses, underestimating
or generating unawareness of the financial or operating
impact and fraud exposure."
alarming that those liable for this disaster remain
calm and collected after the Superintendent's Office
made this evaluation of managerial performance after
the Bank was taken over by the Government.
this time no one has moved a finger to do anything.
For instance, Fogade is bound by law to set up rules
whenever it furnishes any financial assistance to
a bank or institution that was taken over by the Government
in order to protect deposits from the public and safeguard
any funds allocated to such assistance.
the Government Takeover Supervisory Board was given
funds amounting to nearly 350 billion bolivars, Fogade
either failed to set up any rules or never complained
of their having been breached because it always turns
up as a delinquent debtor and never as the custodian
of huge sums awarded by Congress.
House set forth expressly that the funds it was providing
were allocated exclusively to returning deposits to
the public and implementing a Latino recovery plan,
but neither for financing a reckless operation like
"the migrations" nor supporting a squandering
the Bank Superintendent's Office did not set any penalty
on these managers despite the high number of irregularities
shown in the reports under discussion, dated 8/30/95
about Banco Latino's external auditors that certified
the doctored balance sheets as of December 31, 1995?
Nothing is said of them, even though the General Law
on Banks and Other Financial Institutions sets forth
external auditors who breach the duties imposed on
them by this Law shall be excluded from practicing
this profession independently, as provided in Article
161, Section 20, by the Office of the Superintendent
of Registered Public Accountants for a period of up
to ten years."
enough, bench warrants have only been issued for external
auditors auditing Banco Latino before its Government
Government Takeover Supervisory Board, chaired by
Gustavo Roosen, and the Boards of Directors, chaired
by this same man and Alfonso Espinoza, led Banco Latino
to an unviable operational and financial position,
being incapable of generating any business in a highly-competitive
market. The Courts should make them accountable in
the same terms as the currently labeled "corrupt"
LIBERTADOR CON CALLE AVILA TELEPHONE NOS. 261.06.25
PESCI FELTRI M. URB. BELLO CAMPO APARTADO 66229 -
DIAZ-CAÑABATE B. CABLES: MAPERASO - CARACAS
CARLOS ZURITA DE RADA
M. PERALES DE STEFANO
PIA PESCI FELTRI S. COURIER MAILING ADDRESS
DIAZ-CAÑABATE S. BUZOOM A-CCS 0632
PESCI FELTRI S. P.O. Box 02 - 8637
E. CAROOZE RANGEL Miami (Florida) 33102 - 8537
February 1, 1996
BANCO LATINO, C.A.
Mrs. MARIA EVA SALAZAR HOBAICA, ESQ.
enclosing its copy herewith, we received the memorandum
sent by the DEPOSIT INSURANCE AND BANK PROTECTION
FUND (FOGADE), which is self-explanatory, in connection
with the usual auditor reports on litigation and in-court
and out-of-court claims.
a result, of all the cases assigned to this Firm by
that Institution, we would appreciate your telling
us, as per your belief, the ones we are to file a
report on with the Fund and how extensively.
As there is nothing further, we remain,
PESCI FELTRI, DIAZ CAÑABATE,
ZURITA DE RADA
Letter to Maria Eva Salazar Hobaica from Carlos Zurita,
a Partner in the Law Office of PesciFeltri, Diaz Cañabate,
Perales y Asociados.
AN IGNORED BANK SUPERINTENDENT
detailed report filed by Bank Superintendent Francisco
Debera on July 17, 1996 is dramatic given its disclosures
involving Banco Latino's management flop, and especially,
the insignificance afforded to this regulator by the
Institution's Roosen/Espinoza stewardships and their
top level Government protectors.
Debera gave an accounting of the manner in which the
Superintendent's Office was scaled down through decisions
that lessened its authority and power to do its job
effectively. Nonetheless, he maintained that he fought
and tried to play a useful role in the financial crisis
by requiring essentially that banks should tell the
truth and not hide their losses or any sort of problem
from their customer base. In short, he asked for a
halt to any doctoring up of facts, no matter how harsh
these could be.
high point in Debera's appearance before the Congressional
Comptrolling Committee, chaired by Representative
Paulina Gamus, was his referencing repeatedly to his
getting little or no information on Banco Latino's
in-house problems from Gustavo Roosen's stewardship
and his core team made up of Francisco Palma Carillo,
Eva Salazar Hobaica, German Garcia Velutini, Jacques
Vera and a few others: "They would resist to
and use dilatory tactics on providing the information
requested by the Superintendent's Office."
indicated that requests for information were submitted
urgently, but there was never an answer, being ignored
time and again. Information was asked for on October
18, 1995, November 10 and 21 and then on December
22 and in January and February, 1996.
was during the post-Roosen/Espinoza stewardships when
the Superintendent's Office succeeded in getting its
hands on the agreements that show not only the huge
sums in foreign currency paid to the American lawyers,
but that their hiring involved telephone calls.
per the Superintendent, the law office of Ginsburg,
Feldman & Bress had received US$4,989,000 up to
that time (on the date of the Superintendent's appearance),
in other words, over 2.355 billion bolivars.
disorganization and anarchy in the hiring process
originated from the bad example given by Board Member
Francisco Palma Carrillo. He would retain his own
law firm of Baker & McKenzie and order hefty dollar
payments on its behalf. As a result, the lawyers that
worked for him did the same thing on their tier, orchestrating
with some other associates of theirs a trail of millions
and covering-up information from this regulator are
tantamount to criminal intent ---a design to act
even though the superintendent did not label this
maneuver during his appearance.
CAME IN WITHOUT ANY RESISTANCE
feature of the House debate involving representatives
Gonzalo Perez Hernandez (MIN), Luis Carlos Serra Carmona
(AD), Luis Rosendo Hernandez (Independent), Roy Daza
(Causa R), Walter Aranguren (Convergencia), Jesus
Perez (Causa R), and interim head/secretary Leonel
Ferrer was migrations to Banco Latino to the tune
of 156 billion bolivars. These came in and were passively
accepted by its board members, without asking for
their counterpart, thus forcing the Institution to
use its own funds to pay for withdrawals by holders
of migrated accounts.
there any explanation for a restructuring bank's accepting
a 156 billion dollar burden resulting from commitments
to savers, without having such funds available?"
was the question posed by representative Gustavo Perez
Hernandez during the debate.
involved more expenses for the Bank, which inflated
its payroll under the pretext that then it had to
service 200,000 new savers. As a result, it hired
over 400 people that were required, as per Latino
board members, to deal with such wave of customers
brought in by the different migrations.
can we blame for this request for more Venezuelan
Government funds, increasing bank operating costs
to provide better service after these migrations?
Who can we blame for such blunders?", asked Perez
Debera said that he was not able to identify at that
time the people that could be blamed for this, "I
think it was the bank and the Board," while adding
something that received considerable criticism, "I
wasn't Bank Superintendent at that time." This
statement seemed to be an excuse to avoid any conflict
with power structures because all the problems involving
the banking issue Debera was dealing with actually
took place before he held his position.
happened was that assets were not migrated immediately,
and they were given to different banks, that's the
issue," as explained by Francisco Debera, adding
that it's obvious that "there was a delay, the
Institution became unbalanced for a while, contributing
to the bank's not being operational, forcing us to
suggest a drastic decision by saying that the organization
was no longer viable. First, because it got shut off
from sources of funds, since it was impossible to
support a non-performing institution at a huge cost.
may be inferred from this statement that the Superintendent
believes that migrations not only hurt Banco Latino,
but also the other banks these originated from: Banco
Italo, Banco Principal, Banco Progreso, Banco Empresarial.
the above-mentioned harm, the delay in adopting management
and financial decisions and actions that created the
imbalance that led to huge operating costs and non-performance
is the ingredient that shows the ineptness and negligence
of board members Roosen and Espinoza, as well as those
of their fellow board members, being punishable under
the Financial Emergency Act.
unusual thing about this is that while all board members
were bankers and finance experts, they got caught
up in an awkward transaction where liabilities were
received in the absence of assets. It is worthy of
note that these migrations were concocted by Gustavo
Roosen as presidential commissioner to create this
A FORSAKEN CUSTOMER BASE
Latino's huge customer base existing before the financial
crisis had some dismal luck. New managers never thought
of the people that for years had been getting a given
service they were used to, while being in the belief
that they were also entitled to demand it because
they had a sense of belonging that Latino's own advertising
had instilled in them.
instead of developing the existing customer base and
managing both the assets they had and the huge funds
they had been given to restructure this Institution,
the new team started to make some wrong calls and
dictate the policy that all costs were to be borne
first, without having a clear idea of any sources
basis for this behavior is that Latino's management
thought that funds would be coming in, together with
better conditions, but this surely delayed any urgent
decisions required at that time calling for keeping
the institution in operation, achieving its balance
and then conducting a privatization study, as inferred
from Francisco Debera's congressional appearance.
decisions became delayed, I don't know if this was
done expecting that Fogade would be paying the money
(200 billion bolivars resulting from migrations)."
management was of the opinion that if the Fogade millions
came in, they could implement a plan to promote institutional
growth and provide loans, in other words, to operate.
But this didn't take place. If anything, payroll costs
jumped to the extent that the number of employees
reached 4,700 in a bank having a 1 billion bolivar
monthly overhead. It was an awesome burden, since
it didn't generate any income, as stated earlier.
the meantime, Latino's huge customer base was forsaken
and badgered, ending up on the road to migration after
it was "shared" as spoils by the banks comprising
the Government Takeover Supervisory Board.
the other hand, customers that actually intended to
pay their debts were scared away or routed through
costly and impossible avenues. Institutional recovery
efforts under Roosen were limited to little, if anything.
This has been reported in open letters. Seemingly,
the "toll booth" technique became a regular
thing, impacting the Institution's recovery.
A CLUB OF ACCOMPLICES
of the things Debera repeated the most in his report
was that securing the information required by this
regulator was a virtually impossible task. As a result,
this prevented him from detecting in a more accurate
and timely fashion any irregularities uncovered when
there was access to information.
said that "we obtained much of the information
we have from this manager (Rolando Salcedo) because
it was very hard to get it earlier." This meant
that the information was available at the bank, and
if the preceding manager did not provide it, this
was because he had the intent to cover up any actual
records, losses resulting from poor management, accounting
procedures and irregular payments to lawyers, as well
as bogus balance sheets. With regard to the December
1995 balance sheet, the Superintendent said that the
Board journalized and published balance sheets based
on "unreceived income" from Fogade and that
his agency could only threaten them with making adjustments
if they sought to redoctor up the balance sheets using
told that he had "clashes" with the Espinoza-headed
Board "because I had to get what I needed, but
I saw that he actually wanted to get things done,
but it seemed that the system, the structure, did
not provide him with the information." Instead
of helping Espinoza, this reflects that he could be
involved in some complicity or cover-up within the
unacceptable irregularity involving a bank's refusal
to hand in basic information to an agency such as
the Bank Superintendent's Office.
we ascertain ---as per Debera--- the idea we had earlier
that there was a system that performed okay. I don't
know what happened. I don't know if the staff was
not supervised or new people weren't assigned, but
the fact is that we ascertained the outcome: We did
not have reliable information as requested."
on the August 1995 report, the Superintendent's Office
prepared a special report specifying everything they
detected and concluding that Banco Latino was not
viable. This warranted a very harsh answer by Roosen
and company, stating that the Superintendent's Office
"was being too demanding", and on one occasion,
they told Debera ironically that "we are delighted
by your requests, as if this were any other bank."
a result, the Superintendent said as follows: "I
have one single Bank Law and only one mandate. I can't
have one for a private bank and another one for a
he explained, the Superintendent's Office always proposed
to Gustavo Roosen and Alfonso Espinoza during their
respective stewardships that the public be shown a
clear picture and that all actual losses be stated
as such. "In fact, I insisted on having balance
sheets submitted with their actual losses by January,
1996," and balance sheets began to be published
showing 5 billion bolivars in losses.
to Debera, this took place after putting up a very
strong fight in December, 1995, "and it was decided
that all the profit apparently shown should be allocated
to reserves, and it was zero even after this; it wasn't
actually zero (since there were more hidden losses),
and we succeeded in showing this. . ."
there was use of power in the form of manipulation
by the Roosen/Espinoza-headed Boards to get privileges
enabling them to do as they pleased, without complying
with any audits and procedures or observing the law.
remembered, one of the first decisions by the Government
Takeover Supervisory Board was to unceremoniously
fire nearly 2,000 people who had been with Latino
for an average of ten years and had complete knowledge
of this banking institution's operation because their
training required substantial investments of time
and resources. Nonetheless, the new administration
chose to get rid of "the old guys" and provide
others with the privilege of taking them on board,
even if they were not ready to replace them.
the time Banco Latino was taken over by the Government,
its staff amounted to nearly 3,500 people who managed
directly over 10% of commercial banks (25% indirectly)
and 35% of mortgage banks. Additionally, they had
a significant share in other segments of domestic
financing and its related companies.
Roosen ordered two large-scale bank employee layoffs.
The first was in March, 1994, and the second was in
April, May, June, and July 1996. But noticeably, his
stewardship incurred substantial operating expenses
to maintain an institution that instead of brokering
just "persecuted and spent".
of fringe benefit payments and useless staff structuring
analyses amount to millions that can not be submitted
as part of the costs incurred by private managers
of Banco Latino prior to its being taken over by the
Government, as currently sought.
"BROKEN" BANK ROOSEN TURNED IN
idea of the collapsed state Gustavo Roosen left Banco
Latino in can be portrayed by just looking at the
report filed by Rolando Salcedo, his successor as
chairman of the board of this institution, who started
in his position on April 2, 1996, and by June, he
was already asked by the table Subcommittee of the
House of Representatives' Standing Comptrolling Committee
to attend a special meeting in the Nation's Congress.
"open fire" in Salcedo's introduction at
his protracted appearance, he stated that the new
Board of Directors, chaired by him, found an institution
having extreme illiquidity.
bank --he said-- that had both rediscounts and advances
from the Venezuelan Central Bank in an amount almost
as much as 50 billion bolivars, "and the same
day I was appointed, I was formally put on notice
that the Venezuelan Central Bank had reached its peak
as to providing Banco Latino with assistance."
other words, Roosen's legacy was a "hot potato"
passed on to Salcedo, who was welcomed with the dreadful
news that Latino could no longer count on the assistance
that the Venezuelan Central Bank had given to this
institution up to that time. All due to Roosen's and
his team's stupid management decision on the so-called
Actually, Salcedo provided the reminder that this
illiquidity resulted from non-payments of migrations,
whose liabilities, but not its assets, were transferred
to Banco Latino, generating a large-scale withdrawal
of such funds, thus causing this institution to become
increasingly indebted in the interbank market and
to the Venezuelan Central Bank by making rediscount
and advance operations.
the bank was turned over to me, it barely had enough
cash for four days. Luckily, it was just before Easter
Week and this was successfully dealt with. In four
days I had just as many meetings with the Financial
Emergency Board until a solution was reached because
the Nation's president interceded."
situation was so critical that there were just two
alternatives: either the National Guard was ordered
to provide branches with protection because there
was no money to pay, the Venezuelan Central Bank would
furnish some assistance or a solution was sought to
find the 50 billion "in order to stop losing
almost three million bolivars per month, which were
the bank's financial losses in filling this gap,"
solution reached the Venezuelan Investment Fund (FIV)
to the tune of 50 billion, in the form of a Fogade
bank-owned portfolio. By the way, he explained, this
operation was conducted in the best interest of both
the Fund and Latino. "As far as the Fund is concerned,
since they placed some money at 54%, having a maturity
date of June 20, and sold those dollars at 520 bolivars,
this was the first day that currency exchange operations
were conducted and they made an excellent deal, and
so did we because we got 3 billion bolivars of our
after this initial heat, Salcedo and his team became
engaged in preparing Banco Latino's restructuring
plan for its immediate privatization. It was proposed
to the Financial Emergency Board and began to be implemented
by selling 74 offices and 3 windows, allowing the
downsizing of the cost structure of the institution,
whose financial income was not enough to even cover
the Board of Directors that Roosen chaired often announced
the bank's restructuring and even spent huge sums
on consultants and advertising campaigns that promised
a role model bank, the country's best and most efficient.
hiring of the international consulting firm by the
name of Andersen Consulting stands out in these dealings.
This firm would be ideal to find a method to privatize
and restructure the bank.
A USELESS BILLION
Consulting first signed a contract with the Government
Takeover Supervisory Board to do work for Latino's
reopening and then, the subsequent boards of directors
asked that it do different management consulting work
for restructuring and running the institution.
last contract ---as disclosed by Salcedo--- was for
organizing a recovery organization. All of this adds
up to nearly one billion bolivars in payments to Andersen
Consulting for these services.
Latino's current Board invited over some representatives
of said firm not only to find out the work they did,
but to evaluate its usefulness in helping them face
the difficult position they had inherited. But the
information was inaccurate and extremely lacking.
Consulting was asked to develop some manuals for the
bank's reopening, a restructuring design, something
absurd for Venezuela, although it seemed to have worked
in other countries. Additionally, it developed procedural
manuals for the opening of a recovery organization,
which, by the way, was a real eye-catcher because
it was an illegal project specifically forbidden by
this research was completely useless to what we are
doing," said Salcedo, indicating that he didn't
know who signed the contract, while thinking that
Roosen executed it initially and then Espinoza.
also made it clear that Andersen Consulting had been
paid nearly 300 million in 1994, close to 500 million
in 1996 and the rest in 1996, "before we came
representatives bombarded him with questions, Rolando
Salcedo explained how he succeeded in getting Banco
Latino again in the black after it was in the red
subsequent to Roosen's razing everything to the ground,
as a hurricane, leaving a closing balance that showed
a loss of two billion as of the last day in March.
April, after Salcedo had just taken over as chairman
of the board, "we reflected 7 billion in losses,
which were the two billion that had accrued plus another
five billion resulting from verification of the bank's
balance sheets," he said.
stated that the operation with the Investment Fund
netted a loss of 1.6 billion bolivars, but "this
loss enabled us to save 4.8 billion in overnight financing
costs, in other words, a lot was recovered."
was merely an attempt at getting to the institution's
real position, he said, and "I know that bankers
don't like to publish balance sheets showing losses,
but unfortunately, losses, if any, have to be assumed,
so we published the balance sheets for April indicating
7 billion in losses."
PAYING THE "JOKERS"
different advertising agencies, consulting groups,
foreign and domestic law firms and highly specialized
technical assistance providers were paid generously
during Roosen's stewardship. Many contracts are still
open for which payments are received from the new
authorities. Up to February 8, 1997, nearly four million
dollars had been paid just to U.S. law firms.
got into something done in the past," was Salcedo's
defense when told that the Public's Wealth Safeguard
Act sets forth that once his term is through, a manager
for a given period is liable for reporting anyone
preceding him; otherwise, should he not report him,
he assumes their liability because he had the legal
time frame to remark on anything improper.
Salcedo stated that he didn't know the reasons that
prevailed for hiring several foreign law firms, including,
but not limited to Ginsburg Feldman & Bress, but
he argued that "nobody changes horses in midstream",
thus, he had to keep on working with said firm. When
asked if he would have made these hirings, he answered:
"I think lawyers should perform those duties.
Bankers are for handling financial situations, not
for acting in the legal area. Our banking approach
has been to focus on what we do best, this is an industrial
principle, which merely consists of managing the financial
institution and privatizing it, we have focused in
the U.S. law firm of Ginsburg Feldman & Bress
continued its actions freely and received hefty fees
that Latino agreed upon without saying a word.
explained in this regard that "up to this time,
the practice is to list expenses, you check them and
in most cases, you believe that what you're getting
is fine. The invoice's good faith is presumed."
to the hiring fever prevailing in Roosen's stewardship,
Latino's Board is still paying for invoices dating
from his term, amounting to a substantial sum in bolivars
because they are dollar-denominated.
THE UNDERWORLD OF THE HIRINGS
Salcedo and his team took over the bank's management
in April, they found huge differences amongst the
different existing agreements. There were those signed
with foreign lawyers, and there were agreements with
attorneys from Caracas and other parts of the country,
as well as those with Saper, a group of lawyers from
the autonomous service of the Office of the Prosecutor
General of the Republic. As reported, the newly arrived
ran into hourly-based agreements executed with nearly
10 foreign law firms. Moreover, there were also agreements
signed with lawyers from other parts of the country
and with Saper attorneys; those for the latter were
not hourly-based, but pursuant to amounts sued for,
where lawyers must be paid 2.5% of the amount sued
for prior to the Trial Court's judgment. Along those
same lines, Roosen did not hesitate in pre-purchasing
television time. Apparently, Latino's blazing Chairman
of the Board planned to saturate the market with advertising
for the "role model bank" that later turned
out to be the superbankrupt bank.
this awesome investment was neither warranted nor
included in the plans of the Board chaired by Rolando
Salcedo, he did two things: "On the one hand,
any non-used time expiring in June was sold to the
Central Information Office (OCI)," which was
acceptable to the tv channels because it was the same
shareholder, in other words, the Venezuelan government.
Then, pre-purchase payments were stopped right in
May, "because we can't keep paying 100 million
bolivars every month, much less for time that we won't
be using," as made clear by Salcedo. And second
of all, negotiations were conducted with other Government
agencies to assign them the above-mentioned television
time at the same cost.
IT THE END. . . OF EVERYTHING?
IT'S ONLY BREAKTIME)
These pages have reflected the performance of a specific
bank management style within the complex world of
Banco Latino as of the time it was taken over by the
Venezuelan Government for political reasons, albeit
a financial basis, thus starting the biggest economic
and political crisis that the country has lived through
since last century, when Jose Rafael Revenga had the
idea of requesting from Grand Colombia's Congress
the establishment of a Bank of Venezuela, in Caracas,
something that didn't materialize because of the antagonism
existing between both regions and the long War of
this, we can say that the full history of the country's
banking industry remains to be written, where loyalty
and betrayal go hand in hand, thus originating a strange
underworld full of lust for money, resulting in the
phrase that some attribute to Lenin, while others
ascribe it to Bertolt Brecht: "Founding a bank
(or managing, we would add) is a lot more serious
than robbing it."
has taken place from the first Venezuelan banking
crisis that began in 1843, when the press called bankers
names like "profiteers" and "usurers",
until this age, where banking institutions have risen
and fallen, as per the way political winds blew in
the country. The falls of financial empires have yet
to be written thoroughly, where the names of "great
men from the Valley" are always mentioned, and
behind them, as "phantoms of the opera",
those of the presidents in office and their assistants
history of the fall of a myriad of credit institutions
in a century and a half where there were great adventurers,
such as the Frenchman Paul Bolo, a/k/a/ "Bolo
Pacha", is so fascinating that it openly reflects
the reason for many of our economic and political
evils. Well, I won't get tired of repeating it. The
banking problem is more political than anything, no
matter how you look at it, and whoever has any doubts
about it can resort to a rich existing bibliography
that, however, as most events in our recent history,
is dormant in an unwarranted sleep that is best depicted
throughout the years, as of the middle of the last
century, we have witnessed the collapse of banks such
as Colonial Britanico, Nacional de Venezuela, Caracas
(the phoenix fell and rose from the ashes several
times), Agricola e Hipotecario (Juan Vicente Gomez's
idea), Comercial de Maracaibo, and the initial arrival
of the large international banks, such as the Royal
Bank of Canada, National City Bank of New York (the
current Citibank), Banco Holandes, and the American
was the first wave, but many more would come, having
their peak as of 1920, when the Government promoted
Banco Venezolano de Credito, Banco Mercantil y Agricola,
and in 1928, with their main offices in Maracay, from
which dictator Juan Vicente Gomez ruled Venezuela
as his large hacienda, two new institutions originated,
Banco Obrero and Banco Agricola y Pecuario, having
had, in their own way, a noticeable role in some of
the country's development.
worldwide financial crisis of 1929 affected the country's
foreign banks, and their control of the machinery
fell in the hands of two entities that would really
cling to it, like a "vice" or "yolk",
until the present, meaning the Government and private
capital. It's not that these didn't exist earlier,
but since the Government in office was the promoter
or engine of the entirety of the Nation's economy,
using its large oil supply, small groups or families
joined the "Great Manna" to vegetate in
its shadow for the most part.
since the large scale "black gold" exploitation
during the twenties, the Executive has been the sole
capitalist in Venezuela, but it created, in turn,
in the words of Arturo Uslar Pietri "a negative
effect", whose result is crystal clear: we are
galloping on an economic and social crisis (one doesn't
exist without the other) that hasn't let one-single
Venezuelan value standing still.
disastrous policy" ---as per Uslar--- "can't
be depicted in any other manner but as an immense
national failure, lacking every single basic public
service, with a high growth of impoverished areas
on the outskirts of cities and an overall crisis."
most negative effect of the manner in which the Venezuelan
Government spent such huge sums, with such a contradictory
result, was that of creating a false economic and
social reality, where generally unprofitable and loss-causing
Government enterprises prevailed in their entirety,
together with a staggering growth of government jobs
and both subsidies and protection to allegedly social
and economic activities, without any rhyme or reason.
entire government stopped being productive, in the
real sense of the word, in order to become a humongous
and most diverse package of aid, protection and handouts
that kept looking like economic and social activities
from the outside."
noted writer's words should certainly serve as the
high point of the fledgling banking crisis, which
may have begun, to some extent, from 1968, with the
collapse, in different stages, of Banco de los Trabajadores,
Banco Nacional and Banco de Descuento y Comercio,
to its current state, when affiliates of large foreign
banks come in, as in 1917 (81 years later), to buy
the leftovers of the remains of the largest disaster
endured by Government funds, with more than half of
the banks either affected or no longer in existence,
since banks may have a lot of things, but they operate
with money that at times could be called another specific
management style displayed by Roosen and his team
during the never-ending Banco Latino crisis ---since
it doesn't seem to have any apparent solution, even
if this institution were privatized--- is consistent
with the approach normally used by the Nation's Executive
to face the country's problems, a method that lacks
creativity on the most part and involves bankrolling
a huge economic cost.
the largest extent possible, these pages are intended
to provide evidence and later become the basis for
another more thorough presentation that will include
the country's "Great Banking Earthquake",
whose blame, if any, is to be shared and shared alike
amongst inept governments, unscrupulous bankers, mediocre
managers, greedy and grudging politicians and a mass
media that played their own cards, as per their own
financial interests within the system's maze, disregarding
the citizenry's right to be informed.
job ---that of the press, radio and tv--- is left
to the journalists themselves. Let them research this
problem to uncover why a story that took place the
same day was portrayed very differently to the reading
audience. Was it free speech? Let's be a bit fairer.
It was a matter of different interests in cahoots.
is the only way to understand the maneuvering that
led to the creation of the "card joker".
is not the end, since the above is just the introduction.
The Book of Truth is yet to come.
[Inside Back Cover]
Journalist Rafael del Naranco is the editor of Caracas's
"Elite" magazine and an international political
analyst for daily newspaper "El Mundo".
The Mass Media "Moises Sananes" Award stands
out amongst his numerous awards and prizes for his
work. He is an ongoing columnist on Spanish and Latin
American print media. His literary works include "Cuentos
de Ciares" ("Ciares's Short Stories")
and "Cartas a Patricia" ("Letters to
Patricia", in five editions), the latter work
having achieved him distinction as a writer in his
own right, as per specialized critics; "Historia
de Kuwait" ("History of Kuwait"); "Apuntes
sobre Rafael del Riego" ("Notes on Rafael
del Riego"); "CAP, el hombre de la Ahumada"
("Carlos Andres Perez, the Man from la Ahumada");
and "El triángulo de corrupción"
("The Corruption Triangle") [Spain, Italy,
and Venezuela], a book that was impounded by two courts.
One even banned the media from mentioning it.
"The Card Joker" is an investigative piece,
the work of a journalist interested in learning the
minute details of the management style in a bank whose
collapse brought on the fall of Venezuela's financial
system, enabling some law firms, however, to cut the
financial deal of the decade.
While catapulted by his merit in having been Marketing
Director for Empresas Polar, the largest Venezuelan
monopoly, Gustavo Roosen has held all sorts of positions,
covering up each of his dubious successes by making
a spectacular jump to another position gotten on the
basis of his cunning management style that has been
questioned by some segments within his own environment.
having been the Minister of Education that sold the
most flour, bread and beer through "food"
stamps that could be exchanged for "some cold
brew" qualified him for making an acrobatic jump
to the position of CEO of Petróleos de Venezuela.
While running an industry that he was totally unfamiliar
with, he showed that he knew a lot about Education.
enough, as Rafael Caldera became President of the
Republic of Venezuela, this character made another
fatal jump from being Petróleos de Venezuela's
CEO to becoming Banco Latino's Chairman of the Board
and lo and behold to Financial Crisis Presidential
gain, as bank Chairman of the Board and Finance Czar,
he proved to be extremely knowledgeable in Education.
one has said a word, neither those who should have
disclosed his true performance as incumbent minister,
nor those who claim to have endured his whimsical
stewardship of PDVSA, nor those who should look into
his actions and omissions in this humongously costly
crisis. All of them kept mum.
is the first published documented assessment of Gustavo
Roosen's managerial "work" as head of a
company: Banco Latino.
pages only reflect the documented truth based upon
official documents, media-published bank in-house
papers and ascertainable evidence from individuals
of unquestionable credibility. There isn't a word
about his private life, but the discussion, however,
deals with his public activity as analyzed in that
there is an exposé of the complaints that no
one understands why Prosecutor General Ivan Dario
Badell puts on ice and ignores, that should be discussed
by the Comptroller General of the Republic to fulfill
his goal of penetrating corruption by bank crisis
"gentlemen", that are "passed around"
from one court to another within the currently proverbial
conduct displayed by special judges and that the Government
covers up under the guise of the fight against corruption.
non-literary analysis shows the different violations
of the Bank Act, the foreign exchange rate system,
the current financial policy, the Public Wealth Safeguard
Act and the Criminal Code.
a jump by this "harlequin/sportsman" confuse
Venezuelans once gain and can he embroil ethics while
being behind CANTV, the powerful phone company, as
he is cheered by politicians, Congress, judges and
the Venezuelan middle class?
this takes place, we will be instituting a sad phenomenon:
THE CARD JOKER.
this takes place, we will be instituting a sad phenomenon: